Rookie crunching data for possible 1st buy

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Rookie crunching data for possible 1st buy

Matt McLeod
Knoxville, TN · Member since 2014 · 8 posts · 6 votes

Hey all. My wife and I are considering making an offer on the following SFH:

3/1 with 1340sq.ft listed at $64,900. Built in 1954. Its an estate sale by the only child of the deceased homeowner. Vacant for over a year; on and off the market since June of 2013. Decent neighborhood. Lots of seniors, blue collar folks and some college kids.

$4500 in DIY renovations estimated: drywall repairs for small mold & water spots; painting interior; ripping up carpet & installing hardwood laminate; ripping up vinyl & installing tile; replacing oven/stove, refrigerator, & dishwasher. Can live with roof and HVAC but will probably need attention w/in 5yrs. We plan on living in it the first year and then renting it out.

20% down for 30yr fixed at 4.3%

Estimate $850/mo. in rent. Median rent in area estimated at $750/mo. Upper end is around $1000/mo.

Estimated cap rate: 7%

Estimated annual cash flow with 10% PM factored in: $3263

What do the BPers think? Thanks!

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Rick H.
Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
12y

I'm only guessing that Bob Bowling has thrown his hands up in the air by now.

I believe his point about CAP rates is that they are market-driven metrics and are not well-suited for SFR's. Relates more to what investors are willing to pay for a particular product type at a given time in a certain market.

Institutional investors rely heavily on the accuracy of the accounting and strength of management of a project and it makes sense where capital and ongoing expenses are spread over larger number of tenants. They want standardized information in order to compare investments. Much harder to do that with an SFR.

What hasn't been addressed is the intrinsic value that others place in SFR's that not typically found in real estate products built for and intended to to be investments (multi-unit res., commercial, industrial, etc.).

ROI is a good fit for measuring performance on 1-4 units. GRM (gross rent multiplier), maybe. However, I'm not going to use some seller's pro-forma CAP rate to decide if I'm going to buy a particular SFR.

Bottom-line investors don't have much tolerance for fluff. I think ROI fits the bill best for 1-4 units.

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y
    Originally posted by @Ben Leybovich:

    And what you described is the blessing of a land-locked market. No skill requirements :)

     Obviously some navigational skills.  Remember I started out in INDY and found my way here.  Some unsuccessful investors keep ending up in INDY.  Go West young man!

    And math skills to determine "the numbers"  and vocabulary skills to know the difference between profit and cash faux.

    Maybe it's just "work smart, not hard!"

    0Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    11y

    Touche, @Account Closed. Eventually...

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y
    Originally posted by @Ben Leybovich:

    Touche, @Account Closed. Eventually...

     Will you be coming over with @Brandon Turner?  I understand he's looking for property with an ohana.  I wouldn't leave my boyfriend alone with a bunch of slow witted men with huge appreciations.  :-)

    1Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    11y
    Originally posted by @Account Closed:
    Originally posted by @Ben Leybovich:

    Touche, @Account Closed. Eventually...

     Will you be coming over with @Brandon Turner?  I understand he's looking for property with an ohana.  I wouldn't leave my boyfriend alone with a bunch of slow witted men with huge appreciations.  :-)

    A. He ain't got any money, and

    B. If he wants me like that, he'll have to shave that damn beard! No negotiating on that...hahaha

    1Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y
    Originally posted by @Ben Leybovich:

    A. He ain't got any money, 

    Don't be so quick to kick him to the curb. A couple of years here and he'll be rich, rich, rich!  Just had a sale in my first condo building.  I bought at $53 a square foot and a recent sale went for $767 a sf.   @Andrey Y.this is the market you were fighting in the last few months.  I think the initial reaction is that these prices are too high but I think people will be glad they jumped on these properties.  I don't think we've reached the new peak yet.  

    0Reply
  • Andrey Y.
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Account Closed:
    Originally posted by @Ben Leybovich:

    A. He ain't got any money, 

    Don't be so quick to kick him to the curb. A couple of years here and he'll be rich, rich, rich!  Just had a sale in my first condo building.  I bought at $53 a square foot and a recent sale went for $767 a sf.   @Andrey Y.this is the market you were fighting in the last few months.  I think the initial reaction is that these prices are too high but I think people will be glad they jumped on these properties.  I don't think we've reached the new peak yet.  

     The hope is, the Honolulu and Hawaii market in general will cool off come Q3 or Q4 of 2017 (my best guess), then it will be time to pour all available funds into a beachside Waikiki or Diamond Head condo. These are interesting times!

    0Reply
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