Hi, I'm completely new at this and trying to learn how to analyze deals.
Ideally I'd like to make my first deal in the next 6 months.
I'm basically trying to get my feet wet, go through the entire process so that I understand it better and get a concrete understanding of what I don't know.
To that end I would appreciate it if you could help me analyze this deal for practice.
The property seems to be under market price, cash flow seems to be positive. If I want to make a small investment on my first property, what is the catch?
Thanks in advance!
Zillow Zestimates are crap. Market prices are what properties are actually selling for, not what some website with no skin in the game zestimates they are worth...
C sold for $23K 18 months ago, and B sold for $11K about 14 months ago.
HOA fee being so high is what's keeping the price of these units so low, IMO.
The catch is that the HOA dues are $172.06 per month. This includes 2 special assessments, as 1 was not covering all of the capital improvement needs. The buildings are over 40 years old and are very expensive to maintain. The rent would likely be around $450-500. There are just a lot of concerns when dealing with an HOA fee that seems to be increasing much more quickly than the rents.
As a general rule I try to avoid HOA's, unless they are low cost. My neighborhood is $15/month which coves some street lights, a little bit of landscaping and a play ground. Watch out for places that advertise "regime fees" usually associated with condo's or a place that someone wants to keep managing but doesn't want ownership responsibilities. I would also shoot for two bed-room at a minimum for apartments and 3 bedroom for SFHs, they are easier to rent. You want a place that someone can keep if their family situation changes, getting married, having kids etc.
I came across one deal in Columbia, SC that was for 25 units for $225,000. Seemed too good to be true. The complex was recently re-modeled, had a pool, community rooms and a fitness center. Rents were about $500 a unit x 25 units = $12,500 a month. The kicker was regime fees were $300/unit per month. That left $200 to pay the mortgage, taxes, insurance, management, vacancy and try to take cash flow. I hope no one was foolish enough to take the deal as it was offered.
When you go to analyze a deal think about all the things that you would have to pay if you were the living there, lawn, general maintenance, pest control, saving for roof/HVAC etc. Use at least 10% for vacancy, I deduct that from the rent I estimate that I should easily get. For rent I start with zillow, but that is usually a little high. I look for similar properties for rent, ask property managers, browse adds on realtor.com & craigslist to get an idea of what I should be able to get, or at least a range then use the low end of that. You want to be in positive cash flow when you get your first rent check. I look for 10-12% positive cash flow the first year from a property the first year.
Thank you @Jim Sokoloff I realize that Zillow is off. I'm trying to learn how to come up with better estimate, part of that is looking at comparable sales and rent rates in MLS, CRaigslist etc.
Thank you @William H. I'm just trying to figure out how I can take my limited capital and turn it into a RE deal that I can learn from without losing money in the next 6 months. I have so much to learn but am convinced that the time for just thinking about it is over. BP is proving a great resource for preparing for that next step.
And Thank you @Jesse Waters for you valuable feedback, this is very helpful in better tuning my criteria.
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!