Analysis of SFR foreclosure

3 Replies

Hi guys, 

We've found a 3 bed/2 bath, 3 car garage, finished basement, nice yard with sprinkler system and well in a very desirable school district. It has been foreclosed on and just listed for sale at $120,000. I am using this as my purchase price as I don't think there is much room to get more of a discount. Comps in the area run $125,000 -  150,000. 

Revenues Monthly (Year 1)

Rental Income   1,200 (14,400)

Vacancy/Loss Rate  5.0% (5.0%)

Vacancy/Loss Value  (60) (720)

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Gross Income   1,140 (13,680)

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Expenses Monthly (Year 1)

Property Taxes Annual  1,158 (1,158)

Insurance Annual   755 (755)

Maintenance & Repairs Annual   684 (684)

Utilities Annual   0 (0)

Advertising Annual    150 (150)

Administrative Annual   600 (600)

Variable Cost PM (% Income)   0% (0)

Fixed Cost PM Annual    0 (0)

Other 1 Annual      100 (100)

Other 2 Monthly     0 (0)

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Total Expenses    3,447

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Expenses as % of Gross Income    28.94%

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Net Operating Income (NOI) 10,233

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Cash Flow

NOI (Cash Available) 853 (10,233)

Mortgage      479 (5,752)

Total Cash Flow   373 (4,481)

Cash ROI    16.60%

Equity Accrued   1,583

Total Return    6,064

Total ROI   22.46%

Cash Flow / Mortgage Ratio   178%

Loan to Value (LTV) 80%

Rent to Value (RTV) 0.95%

Capitalization Rate 8.5%

I can't for the life of me figure out how to link my spreadsheets I've got on my computer to these posts. 

Thanks for your time.

Hi Justin,

I would say overall you've done a good job on your numbers. A couple of things however.

First, I would factor in some utility expenses. I assume there is landscaping that will need to be watered, etc. While you are marketing the property this will be your responsibility unless by chance you have a tenant lined up to move in as soon as you close. That would assume you don't have to do a single thing to the property as well, which I doubt. You'll also need electricity, not only to probably do some of the clean up but you'll want to be able to turn on lights, etc. when showing the property. 

Second is a topic that is commonly discussed/debated on the podcast and on the forums. You should always, ALWAYS, factor in property management costs even if you plan on self managing. Why? What happens if something happens and you have to move out of the area and you can no longer self manage? What happens if you decide you hate being a hands-on landlord and don't want to deal with it anymore? You need to make sure the numbers will still make sense if you ever decide to hire a property manager to manage the property. 

Finally, and this is just my personal preference, but I always use an 8% vacancy rate, if not 10%. Again, it's better to be conservative and still make sure the numbers make sense than to project too low and lose money.

Best of luck!

Eric

Eric, 

Thanks for the thoughtful reply! I'll be sure to include those in the future.

Have a good day.

I would estimate repair and maintenance at about $1,000 and capital expenses at $500.  I would estimate management costs at 14.5%.  Most of my managers charge 10% of rents + one months rent to find new tenant.

The total expense ratio becomes about 44% which seems reasonable to me.

Good Luck

Bill

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