So I (a newbie) checked out today a condo listed on the MLS (#1321480) and I want to see if I'm analyzing this correctly. Here are basics:
List price (assumed purchase price): $114,900 with 20%down on conventional loan at 5% and minimum monthly payments of $493.45.
Gross max rent (estimated): $1000/mo or $12000/yr with 5% vacancy rate.
HOA fee: $1080/yr
Insurance (guess): $600/yr
Property management (educated guess): $960/yr
TOTAL OP. EXPENSES: $4,749/YR
RRA: $200/yr and debt service at $5921.36
NET OP. EXPENSES: $6651
CAP: 5.79% (pretty bad!)
COCR: 1.96% (pathetic)
Debt/coverage ratio: 1.12
50% rule: ($221.36)
1% rule: ($149)
IRR: 43.7% (pretty good, right?)
To get good cap & COCR rates above 10% I need to buy this place for $60k, right? Did I miss anything? Do your numbers agree with mine? Thanks!!!
Good analysis. Unless the seller is in some unseen distress, I think they would be silly to let this go for $60k, but your numbers look well thought out. I am not seeing an HOA fee, you'll want to factor that in. I assume you'll be managing on your own?
I'm guessing you're moving on from this. If not, there are a couple more things to watch out for. As far as the property itself, I'd check why it's not approved for FHA. Even if you show up at your conventional lender's office with a 20% down payment for this, they might still have a tough time financing it or any other older condo. Conventional guidelines basically require an HOA checklist with requirements that this may not pass, hence the nice price at $114,900.
Get your agent to get the listing agent on the phone and have them get you the scoop, there may be a little more than meets the eye here. Message me with any questions you may have.
Tanner, I think you conducted a pretty good analysis on the property. The 5.79% cap rate is about the norm in SLC. I have never found condos to be good rentals. The HOA always gets in the way of cashflow. If you are looking for good income property and would be willing to look out of state we should chat. You mentioned the 1% rule. I have a number of income properties that all beat the 1% rule. Good luck!
Thought I would throw out a few thoughts:
- I think you are on the high side for potential rent amount.
- If managed properly you can get by with less than 5% vacancy (I have virtually none), but that may change with about 1,000+ new rental units under construction and coming available soon in the area.
- Interesting that they have 2 water heaters for a unit that size.
- Insurance should be less than half of what you projected (I am an insurance agent and can help if you have any specific questions or needs).
- Your maintenance figures seem on the high side as well considering the HOA covers the building and yard/common areas.
- That is about what a typical retail deal looks like around here--and people are snapping them up. The numbers don't always make sense to me...
-If it were me I would probably pass on this one--there are other similar but larger (and FHA approved if that matters) units that can be found for about the same price, but you are on track with your analysis and nice job putting the numbers together.
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