I'm a newbie. Please help me analyze the deal below to see if this rental property will cash flow at least $200/month? I run a general numbers but looks like it might not be positive cash flow.
Purchase price: 189,900
Down payment: 25% (37,500)
Interest rate: DSCR, I'm not sure what it is at the moment, maybe 8%, my credit score is above 740
First Year Income and Expense
Income:
$1,898.00
$22,776.00
Mortgage Pay:
$1,045.06
$12,540.77
Vacancy (5%):
$94.90
$1,138.80
Management Fee (10%):
$180.31
$2,163.72
Property Tax:
$375.00
$4,500.00
Total Insurance:
$100.00
$1,200.00
HOA Fee:
$21.00
$252.00
Maintenance Cost:
$166.67
$2,000.00
Other Cost:
$41.67
$500.00
Cash Flow:
$-126.61
$-1,519.29
Net Operating Income (NOI):
$918.46
$11,021.48
What will make this deal work? Maybe offer at lower price like $150,000 or raise the rent, this property does need some simple cosmetic fix like paint and maybe new floor.
Thank you so much for your input, I appreciate your time.
Sounds like you're being conservative in your underwriting- that's wise. Offering a lower price makes sense, as well.
As far as the management fee- is it the best decision to pay that monthly as opposed to self-managing considering the cash-flow (or lack thereof)? Is this an OOS investment? Otherwise, self-management is definitely your best move.
If you are paying an HOA Fee, you might be able to project less maintenance, management costs etc. depending on what the HOA provides.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
3y
If you bought for $150k then you refinance down the road at say a 5.5% rate, your cash flow would be about $112 per month in the beginning and bump to $278 after the refi.
$112 per month is a pretty awful return on ~$35k cash invested. But after the refi the return is great.
You ran your numbers well, you're accounting for everything.
The biggest issue here is that to me the deal only makes sense if rates come back down to the mid 5% range in the next couple of years and you refinance. Nobody has a crystal ball. Nobody knows if that will happen.
Sounds like you're being conservative in your underwriting- that's wise. Offering a lower price makes sense, as well.
As far as the management fee- is it the best decision to pay that monthly as opposed to self-managing considering the cash-flow (or lack thereof)? Is this an OOS investment? Otherwise, self-management is definitely your best move.
If you are paying an HOA Fee, you might be able to project less maintenance, management costs etc. depending on what the HOA provides.
Thank you so much for your input, this is an OOS investment. I'm definitely conservative on my numbers.
If you bought for $150k then you refinance down the road at say a 5.5% rate, your cash flow would be about $112 per month in the beginning and bump to $278 after the refi.
$112 per month is a pretty awful return on ~$35k cash invested. But after the refi the return is great.
You ran your numbers well, you're accounting for everything.
The biggest issue here is that to me the deal only makes sense if rates come back down to the mid 5% range in the next couple of years and you refinance. Nobody has a crystal ball. Nobody knows if that will happen.
Thank you for taking your time and giving me your opinion on this deal. My strategy is buy and hold and hopefully refi when the rate goes down like you said. As long as I am positive in cash flow $100-200, I'm a happy camper. I can raise the rent annually to help my cash flow. This property is below neighborhood comp (50-60k), I might be able to renovate to force appreciation and sell it if everything goes south.