First Rental Analysis

11 Replies

Hey Biggerpockets Members,

I am currently in the process of renting my first home that I purchased. Below is my analysis.

Mortgage, Property Tax, Home Ins.- 830

HOA- 80

Garbage- 15

Lawn Maintenance- 25 

Vacancy- 10%

Repairs- 10%

12month leases

House Details

3Bed 2Bath 2Car Garage 1450SQFT in Florida

Inside a partially gated community. No front gate. HOA will be installing one this year.

Rental Comps in my area - 1100-1400 none are inside gated communities.

Rent Charge- 1250

Gross Annual Revenue- 15,000

Vacancy- 1,110

Repairs- 1,110

Gross Expense- 11,400

Net Profit(Before repairs/Vacancy) - 3600

In advance thanks for your help and time.

Chris

@Christopher Hodum

Welcome to Bigger Pockets! And congratulations on jumping into Real Estate Investing.

I factor 10% for vacancy, 5% for cap ex, 10% for maintenance and 10% for property management. 35% x $1250 is $437.50 per month. That would put you in the red and it would be too slim for me to hold. However, I own older homes in low-income neighborhoods and I use a property manager. So if you self-manage, you'll save yourself some cash. If the home is newer and in a nicer area (sounds like it), your maintenance and vacancy are likely be lower. So it might work. You can only find out by trying. I hope it works well for you.

Mike

Originally posted by @Michael W.:

@Christopher Hodum

Welcome to Bigger Pockets! And congratulations on jumping into Real Estate Investing.

I factor 10% for vacancy, 5% for cap ex, 10% for maintenance and 10% for property management. 35% x $1250 is $437.50 per month. That would put you in the red and it would be too slim for me to hold. However, I own older homes in low-income neighborhoods and I use a property manager. So if you self-manage, you'll save yourself some cash. If the home is newer and in a nicer area (sounds like it), your maintenance and vacancy are likely be lower. So it might work. You can only find out by trying. I hope it works well for you.

Mike

I will be managing the property myself. I've already shopped around for a manager and the two in my city that responded charge 20% per monthly rent. Pretty hefty. The house is a 2006, along with all the other homes in this development. It sits at the top of a cul-de-sac. Minimal traffic. Thanks for the input, I may need to adjust my expenses, to be more conservative.

@Christopher Hodum

Don't worry too much. If you are self-managing, you give yourself some extra margin. When I say my homes are old, I mean it. Most were built in the early 1900's. So your 2006 property should have significantly less maintenance and perhaps less turnover/ vacancy. So it might very well turn into a decent property for you. 

But in the future, I would like for properties with a bit more margin between the income and expenses.

Mike

@Michael Wentzel , you mention that you estimate 5% for capex. Has this estimate proven accurate in your experience? Thx!

@Brice Hall

 You might want to ask someone with a longer track record than me. I bought my first property ten years ago, but most of my purchases have been the in last 24 months. I actually factor in 15% for maintenance and cap ex combined. It think this is pretty conservative, but I do have older houses. The one thing on my side is that I fully renovate all the properties as soon as I purchase them. So most have new roofs, new interior and exterior paint, new laminate flooring, new appliances, new hot water heaters and some have new furnaces. My guess is that this should lower my cap ex over the next five to ten years, but only time will tell.

Mike

@Michael Wentzel sounds good. From my research, one should expect at least $200 per month in capex for a SFR like this long term. So just wanted to help make sure you estimated conservatively enough.

@Brice Hall

That sounds a bit high. I guess it depends on the value of the home a bit. My homes usually appraise for $60,000 to $70,000 after renovations. I am guessing this is on the far low-end for most markets across the country. New York City is probably a bit different.

Mike

@Michael Wentzel have you done any kind of capex reserve spreadsheet for this property? 

Check out this post and the capex annual accrual spreadsheet midway down:

http://www.biggerpockets.com/renewsblog/2015/03/03...

Now you may disagree with the numbers here, but from their research they found a reasonable expectation of replacement costs seems to be about $257/door.

What are your thoughts? 

@Brice Hall

If you hang around BP, you will find out Ben is one of the most outspoken contributors around. And he obviously doesn't hide his dislike of "cheap" rental properties. That being said, his experience and number crunching has a degree of validity to it.

Like others have said in the comments, his numbers on costs seems high on some lines and his numbers on lifespan seem low. Some items he includes in cap ex I would actually put under maintenance... flooring, paint and plumbing. Elsewhere in the article he uses a round number of $200 per month for insurance and taxes. My costs for insurance and taxes per property are about $75. So I gain back a little margin there.

And generally speaking, the properties I purchase are purchased for $20,000 to $30,000 and appraise for $50,000 to $70,000. So they are slightly above the bottom-of-the-barrel.

So I'm making money at the moment. Time will tell what my portfolio does long-term. As I grow I hope to diversify into small apartments (5-20 units) and B-class single-family homes.

Mike

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