Would you do this deal? [Calc Review] Help me analyze this deal

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I'm curious if folks would do this deal? We ran the numbers using terms from our hard money lender. The goal of this property is medium term rentals. It's a 4 minute drive to a Level 1 Trauma Hospital.

Tim Herman · Answer

@Becca Pariser Is the only goal getting to infinite returns. You can manipulate numbers to get to infinite returns but better numbers give the true picture of the property. Buy cheaper, increase rent have a higher arv, spend less on rehab. All those will go towards your goal. Did you run budgets on repairs and capex or only use percentages. An example of 1 item in a capex budget. Floors. Go to your favorite flooring store and ask what the commercial warranty is? 10 years or less. That is your lifespan. Say you have 1500 sf of flooring. My area it is $6 sf. $9000/120 months lifespan=$75 per month for 1 item in a capex budget. Still need to account for roof, hvac, appliances, hot water heater, bath and kitchen remodel, etc. Is your capex budget sufficient? Time also plays a factor. In the example above say the floors are 5 years old, now you only have 5 years to have enough budget to do the floors. Your capex for that one item is now $150 per month. What I do now is save every penny until I have enough saved for 1 1/2 times my most expensive capex. Then I start saving for the next investment. Once you use your reserve for anything you suspend your saving for the investment and grow it back up to fully funded reserve. Once you get critical mass you can use cash flow from other properties.

Tim Herman · Answer

@Becca Pariser I use 8% vacancy when analyzing long term. MTR rentals are going to be determined by contract length of your applicants. How long will it take you to rerent to another MTR tenant. Is it going to take a month between tenants every time a contract expires. How did you determine the rental price. I looked at some rentals in the area that were bigger and rented for less. Weren't furnished but 2 beds and $500 cheaper. You are getting a 300% return on a 50k rehab. If your numbers are accurate this would make a better flip.

Tim Herman · Answer

@Becca Pariser How did you arrive at 5% vacancy. That is the same as each tenant staying 20 months between turnovers. Do the contracts with the hospitals go 20 months. Your property tax will go up. If 275k is $700 per month and the arv is 486k there will be quite a jump in taxes. Where did you find a contractor that can do a project for 50k and get an additional 150k in equity. Did you run budgets for the repairs and capex. Hard to give advice without knowing more about the property. Is the $50 misc for grounds maintenance. That seems light.