15 Replies

Ok, so i was wondering if I'm missing anything on the first numbers i have ran on an actual property.  Let me give you a rundown of how it went.  

listing price 169k

cash to close would be 11129

month rents are 1350

prop tax 95 

insurance 101

mortgage would be 730

vacancy 135

repairs 35

that brings me to 1096 of expense

then i took my income (1350) - expense (1096) = 254 in cash flow 

that would make my annual return 3048

then take that 3048 / my initial investment 11129 = 27%  

I'm just making sure these numbers are correct.  Im wanting to make the leap and start investing but i need to double check my numbers. now the taxes and insurance are spot on i received quotes.  can someone help me out and let me know if I'm missing something. that return seems really high

35 per month in repairs?? 1 repair of any size blows that number out of the water.

@Jason Chambers   could you enlighten us on the type of property and how nice the neighborhood is?  Your rate of return is actually pretty bad unless you have a top of the line house you are getting with a load of equity in it I would pass.  You should be able to get a nice house with a much higher cash flow than this one.  You are only getting about .8% of the purchase price per month return.  I would not consider a return like that personally, the ratio is just way off.  Please tell us some more about this place.  Your repairs are pretty low also.  Depending on the property you might want 5% or so for Cap Ex, like a roof or AC or sewer main repair.

Yes of course. It's a newly built this year duplex in a nice neighborhood. 2 bed 2 bath brick very nice. My figures I believe are off.

What @Jerry W.  said. Research the "2% rule" on here. In some markets that's very hard if not impossible to reach but, in most markets you should be able to get 1% or better of purchase price in rent. Using the house above as an example you'd want to see ~$1690 per month in rent. Personally, I wouldn't look at anything that doesn't hit close to 1.5% and that's on the low side. In the instance of the house above this would be $169,000 x .015 = $2535 per month in rent. Ask around here on BP and see what other landlords are getting in regards to the 2% rule in your area of Missouri. 

Jason I see the asking price you mentioned but I hope you are offering a much lower amount? 

Personally I don't like 2 bedrooms for rentals. The market fro 2 bedrooms is much smaller than 3+ bedrooms. 

Are you buying one side of the duplex or both sides? If both sides the asking price seems more reasonable.

In a house like this, those very low prop taxes do help. If he can get > $200/M cash flow, that is not too bad. 

I'm purchasing the entire duplex. I really appreciate everyone being so helpful. So figuring 2% of purchase price for total rents? That would be a safe area to figure?

@Jason Chambers  

As @Troy S.  and @Jerry W.    explain, the 2% rule is a starting point and a rough figure to find properties for sale in your area .  2% is generally a high rent/purchase price ratio, at least in my area.  As you will find in your research on BP, many people go by 1% or 1.5%.

You have to do your due diligence in your area to find what the Market Rent is.  In your analysis, you use $1,350 rent per month. To achieve a 1% rent/purchase price ratio, you would need to purchase the property for $135,000 ($1350 / 0.01).  To achieve 1.5%, purchase for $90,000 ($1350 / 0.02).  

This property is a 2 BR 2 BA duplex, one bedroom one bath each side?  I want to be sure $1,350 is an accurate TOTAL figure in your analysis.  Will you be living in this after purchase?  Will you, as the landlord, be paying any utilities or will tenants pay everything?  Include these in your estimate.  However, unless you buy this house for less than $100,000, it doesn't seem to cash flow well.

listing                $169,000.00

cash to close      $11,129.00 (Approximately 5% Down Payment + Closing Costs)

Total Loan Amount $157,871.00

Monthly Rent $1,350.00

Insurance $101.00

Property Taxes $95.00

Vacancy - 10% ($135)

Management - 10% ($135)

Maintenance - 10% ($135)

CapEx - 6% -Create list of large items (roof, flooring, windows, etc) with their Service Life and Expected Life Left and calculate the monthly CapEx cost for this house. Through my research on BP, many people have found their historic Maintenance AND CapEx to be 16%.

Expenses Subtotal $682.00

NOI $668.00

Monthly Loan Cost $799.91 ( 4.5% interest, 30-yr loan)

Cash Flow $(131.91)

I hope this helps!

BP Community, PM me or let me know here if my thought process makes sense.  I have been reading the forums, listening to the podcasts, and researching properties in my area and am also creating my own property analysis worksheet to find good deals.  

Originally posted by @Jason Chambers :

I'm purchasing the entire duplex. I really appreciate everyone being so helpful. So figuring 2% of purchase price for total rents? That would be a safe area to figure?

 2% is hard to get in many areas as stated. You need to find out what is common in your area. I can guarantee .08% is abysmal in your area. Don't jump on the first thing that comes along in order to "get in the game". 

Thank you, I appreciate every bit of info and knowledge i can get. Thank you again

You mentioned it was newly built. My experience has been that on new builds (in my area) that property taxes are grossly under-billed in the first year or two because the taxing authority bases the taxes on a partially built or vacant lot for the first part of the year.

Maybe that's why the taxes are so low?

Are the utilities all metered individually so tenants can pay all utilities? If not you will need to factor that cost in or pass it on through increased rent.

all metered individually but I don't think the numbers are gonna meet with my requirements on this property. I appreciate everyone's help on this I have learn so much just off this first post.

@Jason Chambers  We are all here for each other, so ask any and all questions you may have!  If you haven't already, setup a few keywords for yourself like "Webb City" or "duplex" or even your name, whatever you may be interested in.

Don't forget to introduce yourself in the New Member forum and to check out the BiggerPockets Ultimate Beginner's Guide to Real Estate Investing here.  Looking forward to seeing you around the forums!

Drew's Post was very good. Only thing I wanted to add was that I don't see PMI in any of the assumptions. Wouldn't there be an extra ~$75 monthly expense incurred for mortgage insurance since he's putting less than 20% down?

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