Please help me learn to analyze a property
I am trying to learn how to analyze rental properties. Below are some numbers that I put together for a duplex I'm looking at. Built in 1987. Each unit is 2 bed, 1 bath, about 1000 sq ft. Both units are currently rented. As far as I know the property doesn't need any repairs. I would appreciate any help or advice. I'm not sure I am doing this correctly.
Purchase Price $126,000
ARV $150,000? I sent my broker a request for info on actual value
Zillow says $170,000 but that's too high
The county assessment is $94,800
Down Payment (20% of $126,000) $25,200
Closing Cost (2% of $100,800) $2,000
I’m guessing on the 2% closing costs, maybe it would be higher
Mortgage $100,800 for 30 years @ 5% $541 per month
I’m guessing on the 5% rate
Annual Mortgage Expense $6,492
$541 x 12 months
Gross Annual Income $16,800
2 units @ $700 ea per month
$1,400 x 12 months
Taxes $1,855
Property Management Fee $1,008
2 units @ 6%, $42 ea per month
$84 x 12 months
This doesn’t include a placement fee
Insurance $700
Lawncare $960
2 cuts per month @ $40 ea
$80 x 12 months
I assume that lawncare will be the owner’s responsibility for a multi-family
Vacancy Rate (8% of $16,800) $1,344
$16,800 x 8%
about 1 month per year, per unit
Maintenance and Repairs (5% of $16,800) $840
This percentage is subject to change after I inspect a property
and see the age and condition of things
CAPEX (5% of $16,800) $840
This percentage is subject to change after I inspect a property
and see the age and condition of things
Annual Cash Flow $2761
$16,800 Rental Income
- $6,492 Mortgage Payments
- $1855 Taxes
- $1008 Property Management
- $700 Insurance
- $960 Lawn Care
- $1344 Vacancy
- $840 Maintenance and Repeairs
- $840 CAPEX
@Account Closed I would have your realtor pull CMAs for houses in the area, so you can determine your ARV. Have you tried plugging your numbers into the rental property calculator under the Analyze tab up top?
@Account Closed I don't see a number for rehab in your initial costs. Is that included in your down payment number? If not, you'll need to add that estimate in so you know how much money you've actually invested.
I did try the BP calculator and I think it's a great tool, but I want to learn to analyze numbers without it first so I can know how it works. The calculator does so much for you that I'm not actually learning how to do it. Also, I might not always have access to the calculator. I need to know how to figure the numbers on paper.
Originally posted by @Bryan O.:
@Account Closed I don't see a number for rehab in your initial costs. Is that included in your down payment number? If not, you'll need to add that estimate in so you know how much money you've actually invested.
I have not included numbers for rehab. As far as I know the property is in good shape and doesn't need any work. Both units are currently rented. Thank you for the advice though! I will add a rehab section to the template that I'm making. I might need to add some numbers there after I inspect the property. Also, I don't want to forget about rehab costs when analyzing numbers on the next property.
I would always anticipate some rehab. If you can get that property 16% below it's value then that means deferred maintenance. It may be as simple as some carpet and paint, but there will be things that need to be done or they would just sell it for market value. Having units rented doesn't mean that they are up to your standard.
Best of luck!
@Account Closed
At the age of almost 30 years since being built (1987) I would increase your CapEx from 5% to 10% if no maintenance has been don( burner, water heater, AC unit) . The average roof should last at least 20 /30 years Yours is about due. Most property management companies at least here in Florida charge 10% management fees plus ½ of one months rent for new tenants. I figure 11% to cover it. I assume from your numbers the tenants pay all utilities.
DOUBLE CHECK to insure they do.
Make it happen
Steve
Originally posted by @Steve Smith:
@Account Closed
At the age of almost 30 years since being built (1987) I would increase your CapEx from 5% to 10% if no maintenance has been don( burner, water heater, AC unit) . The average roof should last at least 20 /30 years Yours is about due. Most property management companies at least here in Florida charge 10% management fees plus ½ of one months rent for new tenants. I figure 11% to cover it. I assume from your numbers the tenants pay all utilities.
DOUBLE CHECK to insure they do.
Make it happen
Steve
Thanks for your advice. I own another rental property in this neighborhood. Tenants do pay for all utilities. I already have a property manager. He charges 6% plus one months rent for placement. I did not include the placement fee in my percentage. As far as CAPEX percentage, I will adjust it after I get to inspect the property. I think the roof is only a few years old. We had some hail storms down here in GA a few years ago. I think I remember this place having the roof replaced. I will know for sure once I get to inspect it.