Hi BP community!
Just wanted to get some feedback on a potential investment I was looking at
Facts: 2 family (4br + 4br) / students / Always rented / 2500 sf of living space, house is in very good condition a great deal of remodeling has occurred in recent years, new kitchens, bathrooms
Gross rents $3680.00
Expenses: taxes (currently $4360.00 + Insurance, water, maint, misc (total $950.00)
NOI: $ $32,760.00
Debt Service ($176,00 @ 4.25% - 30yrs) $866 / monthly ($10,392.00 / yrly)
Net Income $1864.00 / monthly - ($22368.00 / yrly)
Cash invested: $44.000 down + $5,000 closing - $7200 Security deposits = $41,800.00
Cash on Cash Return" $22,368 NI / $41,800 cash invested = 54%
Gross Rent Multipler ($222,000 / $44,160) = 5.0
Cap Rate ($32,760 NOI / $222,000) = 14.9
These numbers were provided by the current property owner, I hoping for such insights that I might not be considering, any concerns.
Thank you all for any insights, thoughts or concerns.
Always want to verify All numbers provided by sellers.54%CoC and a 14 cap rate sounds too good to be true, don't you think? Thing with students is most move home for the summer so you can't expect or rely on 12 month leases.
I'll take a quick stab at this.
First of all I don't understand the way they're presenting the math here. Secondly, I'm not convinced these #'s are accurate. Here's the way I would run preliminary #'s at this:
Gross rents (3680 x 12=) 44,160. Less vacancy (say 10%? I have no idea in your area, so purely hypothetical) 4,416 = $39,744 Gross operating income. If we apply the 50% rule (ie: total expenses will be 50% of income, and this can be conservative depending on property condition) then expenses are more likely to be $19,872 than the (+/-) $11,000 indicated. (This usually accrues to not factoring in management and/or Capital expenses) Leaving an NOI of $19,900
So, $19,900 in NOI, less debt service (provided #'s given are correct) of $10,400=
$9,500 in net income. 9,500/49,000 cash to purchase (don't know why security deposits are included here, they have nothing to do with the purchase) = 19% Cash on cash return. Pretty good number, if its true, But nowhere near the 54% number provided (faulty math). At this point, If I chose to continue, I would begin to verify everything as much as possible, some things aren't adding up (besides the math). For instance, this is student rental, 100% occupied? who rents it in the summers? It also occurs to me that a student rental might need more intensive management, ie: higher costs than the 50% rule.
Good Luck, and good investments,
Thanks for your feedback!
Clarification, in my area, the students pay year round. this was started years and years and years and years ago. If you want that location you start to pay June 1st to secure the location. You have the option of spending the summer there. Some do, many live in different parts of the state, county. But the option is still there to live starting June 1st. So thopse numbers are based on 12 months.
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