Looking for advice on a 5 house package. Two houses are 1b/1b, two houses are 2b/2b and the final house is 3b/1b. I would love to hear your feedback and to see if I am missing anything. The bank would give me 5 percent fixed rate for 20 years with 20% down.
Purchase price: $250,000
Total Monthly Rents: $2750
Annual Insurance: $5000
Annual Taxes: $1000
All five house are currently rented and tenants pay all utilities. I have not been in the houses yet but from the outside they look to be in pretty good shape. I have been researching rents in this area and I think their is room for increases. Please advise as to whether you think this is a deal worthy of evaluating further.
Not knowing anything about the condition of the properties, here's the quick desktop analysis:
2750/mo * 50% (rule of thumb, estimated operating expenses) leaves an estimated NOI of 1375/mo.
After you make your 50k DP, you have a loan of 200k @ 5% that gives you a monthly payment (debt service) of 1320/mo which leaves you a whopping estimated pretax income of $55/mo. Banks generally use a 1.25% debt coverage ratio for qualification based on NOI and this is only 1.04% debt coverage ratio and not a qualifying debt coverage ratio.
I think your $50k can do better than that in another investment that you haven't found yet.
NOTE: This is only a quick desktop analysis using rules of thumb. Your due diligence may prove otherwise, but on quick analysis, this appears to be NO DEAL.
Hi Derek I'm very much a newbie to all this and am doing almost the same deal, but here is how I have tried to analysis this. Please verify with someone a lot more experienced than I.
You going to loan $200,000, with $50,000 down plus closing, at 5% interest gives you a $359.00 mortgage payment per month $4,311 per year. Let say you have 10 % vacancy that would leave you with a gross income of $29,700 per year. For arguments sake lets subtract the 50% rule, $14,850 for insurance, expenses property management e.t.c. Less you mortgage $4,311 per year, that leaves $10,539. Divide by 12 months, leaves $878.25 per month divide by 5 houses, leave $175.65 per house or per door.
This is what I'm finding as well, not quite the same but close enough. Is it a deal or not?What I'm concerned about, have the previous owners neglected to keep up with capital expenditure and now dump it on you. Scratching my head.
Looks like I messed up on the Mortgage. Wow.
Thank you for the insight.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing