3 Family analysis in MA, first property...

6 Replies

Hello,

This is my first property and I would like to get some input from all of you who are way more experienced than I am. I am looking to buy and hold for positive cash flow. I am a contractor so the repairs and maintenance I will be handling myself.

  • Purchase Price: $195,000
  • Closing Costs $3,000
  • Down Payment(25%):$48,750
  • Terms: 30 years 4.75%
  • P and I: $763
  • Rents: $2700, Annual: $32,400
  • Vacancy(8.3%):$2700
  • Prop. Taxes: $3,100
  • Prop. Ins.: $1,800
  • Repairs(Not Much Needed): $3,200
  • Utilities(Water, Common areas electric): $1,500
  • Maintenance(5%): $1620
  • Lawn/Snow Removal: $1200
  • Total Operating Expenses: $12,520
  • Net Operating Income: $17,180
  • Annual Debt Service: $9155
  • Cash Flow: $8025
  • Cap Rate: 9%
  • CCR: 16%

Am I missing anything?

Thank you for your help.

Kyle

A couple of questions:

What town is it in? Not trying to scoop your deal, (all my rentals are in NH, I don't buy in MA) but the location matters, you can PM me if you like.

Who pays the heat and hot water?

How old is the building, your maintenance looks light.

Closing costs might be light too.

Medium small logoAnn Bellamy, Buy Now, LLC | 800‑418‑0081 | http://www.buynowhardmoney.com | Podcast Guest on Show #9

Agree with the others that the closing costs seem low. I'd budget at least double that number unless you have an actual estimate from your lender that it is going to be more like $3K.

I will assume the answer to the who pays for the heat and hot water is the tenants. Given you did a pretty good job identifying expenses and have a line item for your utilities I don't think you would have missed that.

However I also agree that 5% maintenance is kind of low especially if you aren't putting away anything towards CapEx reserves too. If you were putting away an additional 5% for that (for the roof or you multiple boilers/furnaces and hot water heaters, etc.) then okay I'd buy it.

So even though you are a contractor and will do the initial repairs and maintenance at cost I would still do it like you were paying someone else since at some point you might not want to or might not be able to do it. Even if that never happens you would not do the work for free for someone else so why do it for free for yourself just to artificially make your return look better?

BTW you don't have management on there either so I assume you are doing it yourself. Put a percentage on there for that as well. Property Management is a job that people get paid for so factor that in for all the same reasons I gave above.

The deal might be okay but if you factored in the costs of paying someone else and if the closing costs are more like $6K then the CoC goes down to like 6%.

Medium rre logo web rgb w motoShaun Reilly MBA, Reilly Real Estate, LLC | [email protected] | 1‑800‑774‑0737 | http://www.MassHomeSale.com | Podcast Guest on Show #43

@Ann Bellamy I will PM you the location. Tenants pay heat and hot water. The building is 80 years old, so I think you are correct in that my maintenance is low, I should probably figure at least 10%. Closing costs are also probably low, that item I estimated, as I am still in the process of analyzing the property.

Thank you for your input.

@Robert Adams Yes, I agree, thank you for the input, I will re-adjust my numbers.

@Shaun Reilly I do not have the actual numbers from my lender, that will be my first call tomorrow. I agree it seems to be low, thanks. Good idea, figuring the maintenance costs even though I will be handling it. Thank you for the info. It looks like I probably need to lower the purchase price in order for this property to work. Is there a minimum CoC that would make it a deal that is worth it?

Thank you all for your input.

Kyl

Well what metrics you care about and what they should look like is really up to you.

Honestly I don't really measure CoC for things. Sometimes it is because I just do cash which makes ROI and CoC the same thing anyway and others because I kind of feel it is somewhat artificial since it will shift based on how much leverage you can get. Sure cheap money that makes your percentage returns go up is great but you also can over lever yourself which is quite bad.

I am more concerned with the actual cash flow I am getting. I usually say I want at least $150/door (this should not be ambitious). In this case that would be $450/month or $5400/year. This is actually quite a bit less than your initial calculation. If you smooth out the management and maintenance stuff you might still be in the range for that. That would also be a CoC of like 9.3% if we upped your cash to more like $58K by doubling your closing cost estimate.

So as you can see we can all just play around with numbers all night. :)

In the end you have to decide what will work for you and how you want to structure your deals. One thing that I would do is nail down any of those numbers that are guesses but you can get hard numbers, or at least solid estimates (like the closing costs from your lender) on get those as good as you can.

One more thing I would say is if you can get the price down do it. I mean it is NEVER a bad thing to pay less! Another option there is to get them to give you a closing cost credit. If you get them to give you one for $5K that will be that much less money you bring to the table (So that would increase the CoC by making a smaller outlay). In that case if nothing else changed your cash flow would be the same, but you would have more money left for other things. Getting the price down will bring the debt service payment down which will increase cash flow a little.

Medium rre logo web rgb w motoShaun Reilly MBA, Reilly Real Estate, LLC | [email protected] | 1‑800‑774‑0737 | http://www.MassHomeSale.com | Podcast Guest on Show #43

Kyle, I think I'd try to get the price down. Of course, the specific location and neighborhood matter, but I have funded 3-unit buildings in that town in the past purchased for far less.

Medium small logoAnn Bellamy, Buy Now, LLC | 800‑418‑0081 | http://www.buynowhardmoney.com | Podcast Guest on Show #9