Am I doing this right? New to deal analysis
Hi there!
I've been running some deals in a spreadsheet and I'm unsure if I'm doing this right or if I'm missing something. Was hoping some folks here at BP were willing to take a look and give some feedback?
Here's an example of a 6 bed 2 bath multifamily that's now off market but was priced at $599,000:
https://www.zillow.com/homedetails/6-8-Belleview-Ave-Ossining-NY-10562/33076551_zpid/
* Rentometer gave me an avg rent of $2,759 for a 3 bed 1 bath, and this property has two units like this. So I'm using $5,518 for monthly rental income. (Note: Zillow's "Zestimate" is $4,200, but I'm using Rentometer for this particular deal.)
* I'm using 5% of that for maintenance ($276), 5% for vacancy ($276), 5% for cap ex ($276), and 6% for prop mgmt ($331).
* Zillow had taxes and insurance estimated at $983 and $210 respectively.
* Using mortgage calculator plus, with a 20% down payment ($119,800) and a 30 year fixed rate mortgage at 6.5%, the monthly mortgage payment woud be $3,029.
Using those numbers, this property should cash flow about $137 per month for a 1.3% ROI.
Does this look right to you?
Any other comments or feedback?
Thanks for taking a look!
A few thoughts.
1) Don't get discouraged if you run numbers and they don't seem to work. It often is not your analysis, just that you haven't found a good deal yet. Running the numbers helps you identify what the good deals look like. FWIW, the best deals are usually from properties that need some work, so look ugly in their MLS pictures.
2) Duplexes can be a little tricky because the rent comparisons are algorithms. A 3/1 rent comp is likely driven from nearby 3 Bed 1 Bath houses and will not rent for as much as one side of a duplex
3) Your expense items feel conservative, and that is good.
4) I'm not familiar with how taxes work in NY, but be sure you are forecasting taxes for after purchase. In many states, a sale results in an increase in annual taxes. Use the increased number in your analysis
5) Related to #1, you didn't mention a rehab budget. Even on a nice-looking property like this one, there will be some repairs needed. It is good to have the extra cash calculated in the deal.
#2 Insurance Contributor
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@Annique Witdoeckt in regards to insurance, you will want to get an accurate quote. Not sure if that estimate is monthly? Zillow is always way off on the insurance estimate.
A conservative insurance premium would be $1500 per year. on a 2,000 sq/ft rental.
Few small items that come to mine. Are all utilities separate or are you paying for certain items. Water, trash, etc. Also are any gardeners pest control needed?
These are just a few small costs that add up and are easily to forget about.
Jason Bott good to know about Zillow.
Greg Scott I hadn't considered that detail about rent comps for multis. And increased tax from sale. Good info!
Thank you Bryce Hammill
In general, in New York, Zillow struggles with its estimates because the inventory can be so varied from neighborhood to neighborhood. I would recommend checking the county tax assessor websites to find accurate numbers. Most counties are easy to use, except for Dutchess. Additionally, instead of using Rentometer, I would suggest looking for rental comps in the area as it can also struggle to provide accurate rents due to the variations in units. Your process looks good, and you are doing everything right. Additionally, a note on taxes, what is referred to as 'spot assessment' is illegal in New York. This means that if a home is purchased for significantly more than it is assessed for, they cannot increase taxes because of that purchase. Instead, neighborhoods as a whole are reassessed for growth. This happens at varying times depending on the area, in some areas every year, and in some every 3-5 years. hopefully that helps