Help Analyze a Potential First Property.

16 Replies

Hello all! So I found a property that I am interested in. Just plugging in numbers in the BP rental calculator. These numbers are just "guessestimates". Not 100% accurate, I tried my best for a newbie. Anyway let me know what you and if I am missing anything or if I need to adjust anything. This is the property and what numbers the calculator gave me. Thank you.

5 Bed/2 Bath Multi Family home in Staten Island, NY. Built in 1920, recently renovated top to bottom, new central air throughout house and new heating system. This was done between 2011-2012. Asking price is 349,00. It has been on market for about 340 days. In this example I put the home being sold for 320,000.

-- Also it is a two family and I looked up the average rents on rentometer then reduced the rents by 100-200 bucks a month for each unit. 1 unit will be renting for $1500 and the other for $1250. I could probably get 100 more on each though.

Purchase Price: 320,000

Monthly Income: 2,750

Monthly Expenses: 2,272

Monthly Cashflow: 477.15

NOI: 20,040.00

Total Cash Needed: 71,000

Cash on Cash ROI: 8.06%

Purchase Cap Rate: 6.26%

Other Information:

Closing Cost: $3,000

Estimated Repairs: $4,000 (I Just put this randomly, it was recently renovated)

Down payment: 64,000 (20%)

Amortized: 30 Years

Loan Interest Rate: 3.80%

Monthly P&I: 1,192.00

Total Operating Expenses: $1,080.00

Mortgage Expenses: $1,192.85

Also using 50% rule it says my cash flow will be 182.00 per month.

Not sure if you guys need any more information, I am hoping this is enough info to share to see if it is a good deal or not or if the numbers make sense. Kinda my first time doing this.

@Eric DeVito Welcome to BP! Very pleasing to see your introduction showing you are keen to jump in at the deep end.

I'm not an expert at analysis, but I like learning, especially from these sort of useful details, and have read a lot of other responses to similar questions.

The first thing I noticed is that your NOI looks to be out of whack. Isn't NOI just your net monthly cash flow, annualized? ie. $477.15 x 12 = $5,725.80 (how did you arrive at $20,040.00)?

The next thing I noticed was your CoC of 8.06%. From most other sources I have come across, swapping the 2% return you might currently be getting for your $71k for a return of $8.06%, when all you have to do is be responsible for a mortgage of $249k for an asset that SHOULD be worth $320k - is not something most investors would recommend. And unless you can SAFELY say that the property can only appreciate and not depreciate, I would also say that this is NOT a "deal". Mainly because how can ANYONE know that this property won't depreciate, leaving you holding the bag?! My 2c.

Hopefully you will hear from other, more seasoned investors weighing in with some expert responses and perhaps a list of  some OTHER things you should also take into account before jumping in. Cheers...

There should be better ways to spend your money in or around your area that you are searching. Your getting less than 1% of your purchase price in rent back. Further, there appear to be some errors in the calculations as stated by previous posters. Finally, that is a significant amount of initial investment of approximately 70k to get into your property with low cash flow. As a point of reference here are some of my recent investments that I've done to give you some perspective. All of these are on 30 year mortgages. My total investment is about the same as yours and my net cash flow significantly better.
Purchase price: 64k rents total $1,200 per month. Initial cash investment $20k.
Purchase price: 71k rents total $1,400 per month (2 units). Initially cash investment $26k.
Purchase price: 36k rents total $900 per month (2 units). Initial cash investment of $20k. Purchase price 56k. Total monthly rental income $1,700 (3 units). Initial cash investment of $28k.

Using some of the concepts talked about on BP I receive over $200/month per door so $1,400/month in net cash flow. Disclaimer: 7 tenants versus 2 should be considered if you are self managing. I self manage, but I actually get closer to $225-$250 a door for my troubles.

Good luck!

New York-Northern New Jersey-Long Island, NY-NJ-PA Metro Area

Rents increased 50.07% from 2009-2014 you are in a very competitive market and it would make me wonder why that property sat for so long.I would do a through analysis with a good commercial realtor.

@Brent Coombs

Hi Brent thank you for responding. Yes I could have made a mistake as I am new to this. I am not really good with percents and all that math. It is a weak area of mine, but I know it is very important in regards to investing and RE in general. I think the problem is the property is just to expensive and out of my budget for what I have in my saving now. 70 would eat up about 75-80% of my savings. I suppose that is not worth it at all then right? I would then have to look out of state and try to start a buy % hold on a cheaper multi family property where I can have more equity in which will increase my cash flow if that makes sense.

@Matthew Cole

Matthew thank you for responding. I am sure there are some errors in my calculations. As far as the less then 1% return rate of my purchase price in rent back how did you come up with that exact number/percent? Math is not my strong suit. I am learning though. Perhaps this property is just too expensive and out of my budget? I could look out of state and find a similar property for much cheaper and then put a 20% down payment which will give me more equity and perhaps higher cashflow as well. Hard to find property here in NYC

Eric,

The 1% rule is the following: can you get at least 1% in monthly rent for your purchase price. So in your example, if you purchase the property at 320k can you generate at least $3,200 in rent? I personally strive to get closer to 2% with the mindset that if I cannot get closer to 2% I can probably spend my money elsewhere (stock market, potential flip ect...). There are tons of rules that people mention. I think you personally have to determine which ones are most important to you. For me I need three things from a buy and hold deal.
1). Am I purchasing the property at or below fair market value in a desirable area to live in. Do I feel like I can sell this property immediately if need be?
2) can I get close to 2% in rent from the purchase price.
3) can I recoup my initial investment to purchase the home (down payment, closing costs, rehab costs) in 3-5 years barring any major unforeseen repair?

to you

Eric,

Like you, I'm thinking of staying near to my home for my initial rental purchases. But my definition of "near" is probably larger than your definition. I'm willing to go up to 60 miles away from home for a good property. Moving a little further out can provide much better ROI in a lot of cases.

The other benefit is more flexible and accommodating laws. New York is tough enough as a landlord. Being around the city has to make it even tougher. Around me, the cities impose a number of additional rules, licensing, fees, etc. But go out just a couple of miles and you still have the same cash flow but a friendlier environment to conduct business.

Best of luck!

Ron

Eric,

I invest in Staten Island. There are much better deals here. Depending on your investment model.

Did your deal analysis include taxes, insurance, repairs and maintenance?

@Dave Fontana

Hi Dave, yes it did include all of that and i was quite conservative with most of my numbers. Any reccomendations?

Vacancy? Easy to get tenants? Repairs? Just because new means nothing. 1 significant repair can wipe those numbers clean out...talk to a home inspector..and add 350 for the privilege....better deals have to be possible.

@Charles Worth

I put Vacancy at 10% which gave me $275, I suppose that's monthly at the end of report.

Capex I put at 5% which gave me $137.50 which I assume is monthly as well. Also at end of report.

Eric,

I'd say forget the 1%, 2% or 50% rule. Real estate is local. How's the area/neighborhood? Would you live there? How much is the annual property tax? How much is the annual insurance? What's the vacancy for the area? How much is the property management fee for this area? Do they charge 1/2 or 1-month rent for tenant placement? Google is your friend if you don't know these. 

Is the duplex vacant? If so, why? If they are occupied, what are the tenants currently paying? The fact that it's been on the market for 340 days, there's a high probability that it's overpriced.  You mentioned that they probably rent for $1,500 and $1,250 +/- $100-$200. That's why I asked the above questions. 

If the local vacancy is 20% and you're assuming 10%, then you're short changing yourself. Don't assume. Do some research and use more realistic numbers for the area. Real estate is very local. 

@Charles Worth

I know, that was my mistake, I did not put it in the post, but it was included in the overall analysis.

@Minh Le

Thank you for your helpful response. I will be the Property Manager because it is a local property that I can get to at anytime need be except if im working of course. So with that being said I don't think the Property Management stuff applies to me in this situation, but perhaps good to know?

Also I did research the vacancy rate I found it is at 12.4%. So I do have to adjust that. Not sure if property is vacant or occupied. Do you think I should check it out at least with an agent, perhaps a walk through.

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