In need of advice about running the numbers on potential deals.

8 Replies

Hello everyone, just recently I have been playing around with numbers to get comfortable with analyzing deals before I jump into the real estate investing game. God willing, I'm going to buy my first property within the next few months by using a FHA loan. I found a few duplexes but again, these are just to test out numbers and see what mistakes I'm making so that I can fix them and improve my analyzing skills. Please give some advice on what I'm doing wrong or right, I would really appreciate it.

Practice #1


-Purchase Price- $150,000

-Closing Cost- $5,000 (I always use 5,000 in my examples just to be safe.)

-Estimated Repair Cost- $30,000

-Total Amount (excluding closing)- $155,000

-Down payment- $5,250 (FHA 3.5%)

-Interest on loan- 5%

Monthly Income

$2,500 (That’s what is currently being charged to tenant)

Monthly Expenses

P&I- $1,379

Vancancy Rate (10%)- $250

Repairs (10%)- $250

CapEX (5%)- $125

Property Management( 10%)- $250 (Not sure if I need to include this because I will be living there on the other side)

Insurance- $200 (Not sure how to know the exact number for insurance so this number isn’t accurate. Too much or not enough?)

Total: $2,454

Total Monthly Profit- $46

In this particular duplex I’m running numbers on are both 3 bed room 2 bath on each side. I’m 22 years old with no wife or kids so I would have two extra bedrooms I will most likely rent out to friends for maybe $250-$300 a room which can boost my monthly profit up to approx $646.

Cash on Cash- 5.39% (I did $46 (monthly income) x 12 then divided that by $10,250 which is down payment and closing cost and ended up with 0.05385) correct?

As you can see I'm a bit stuck on how to find the exact number for insurance. I have been trying and trying to find a way to get the exact number or at least closest to it but I'm still having a hard time but I'm still researching the best ways to do so at the moment. For the mortgage and taxes I use an online calculator that fins the PITI.

Are there any other factors I have to add in that will be charged to me down the road? Also how would you calculate garbage, water, etc. if I were to add it to my analysis?

Please review my analysis and let me know if I’m missing anything that I should be calculating or if my numbers are way off on any of the costs. Thank you in advance! I know I need to keep practicing but I don’t want to practice over and over with the wrong technique so its best if I correct it now and continue to practice the correct way in the future.

When you get an actual property (sounds like you have one) call who insures your car and see if they cover homes as well. FHA typically is going to want your home owners escrowed and will want that anyway. You should be able to get your interest a little bit below 5% depending on your credit. I would NOT pay for property management on a duplex I was going to owner occupy. You could rent out the rooms to a buddy or two.

If you can rent to guys who work an opposite schedule. The one time I rented with friends it only worked because we were on opposite shifts and I was typically at my girl friends (now wife's) house.

This is just my personal opinion but 5.39% cash on cash return is awful. You can get that return in the stock market, without having to cater to tenants. I don't consider a house unless I can get 15%+ cash on cash return. You should shoot for at least 10%. Housing has a lot more responsibility involved, so the return should be greater. 

The more accurate your analysis, the better decision you can make. Sounds like you know this, you just need to dial expenses in a little bit. 

Insurance is easy, you literally just call and get a quote from 2-3 places and then you won't have to guess. 

Do some more research on closing costs, you don't want to guess costs, you want to know. 

You're calculating cash on cash correctly so that's good. 

you're very close, probably 90% of your analysis is gtg. Just dial it in! 

@Ryan Dossey Thanks for the reply! The two buddies are both in college still so they will be in and out of the house so it should work just fine (hopefully).

@Peter T.  Thanks for your input, currently I'm just running numbers so I'm not giving an offer on this particular duplex but thanks for your advice I will surely be on the look out for a greater Cash on Cash percentage! 

@Alexander Felice Thanks Alexander for your advice, do you think I should include more expenses? I know some people include garbage, flood insurance, water, etc. with their expenses but some do not.  As far as closing cost, what do you think is the best way to get an exact number, simply through the seller? Thanks again!

I may have missed it but I didn't see property tax in your monthly expenses. Also, you have a $30,000 repair cost. If you are paying cash on those repairs you would need to add that to your 10k for the COC%.

@Jeremy Walmsley I used the PITI calculator and I was told that it includes it in the total PITI. The property tax history states that in 2014 taxes were at $7,232. Should I double check and make sure taxes are included? As or the 30k in repairs, I was going to use the FHA 203k loan that provides the funds for the repairs.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here