Can somebody check my numbers?

Question

I'm in attorney review on my first rental (SFR), as a no-money down deal!  (I have a private investor willing to finance me on 100% of the purchase price)  Very exciting.  I have been on BP for a while now and I've run numbers on a ton of deals and have a pretty decent understanding.  I thought I would get a reality check on my deal here since it's actually happening now.  Please let me know if these numbers make sense as a good deal:

Purchase Price:  $155k

Expenses:

• Taxes:  3,439
• Insurance:  900
• Maintenance:  1,200
• Vacancy:  1,038
• Total Yearly Expenses:  $6,577
• Total Monthly:  $548

Financing:

• $155k, 30 yrs, 5% = $832/month

Expenses + Debt = $1,380/month

Income:  Property comes with tenants paying $1,500/month

CashFlow:  $120/month

NOI (without debt):  18,000 - 6,577 = $11,423

Cap Rate:  11,423/155,000 = 7.37%  In this particular town, 7+% is very hard to come by

I also believe the current rent is below market, and has potential to raise to 1550 or more.  I also have more than enough reserves to comfortably stash 8 months of expenses aside in the event of vacancies.

Since my investor is an older gentleman and looking to secure himself some passive income for a while, part of our private mortgage deal was that I can't refinance before 10 years, but also that I must refinance before 15 years.  I also do not have to personally guarantee the loan - this was OK with him since he is also a real estate investor himself and doesn't have a problem with foreclosing the asset in the event of a default (another rental for him).

How did I do BP?

Michael Henry · Answer

The numbers don't work; you need a better price! At the numbers you provided your debt to income ratio (DCR) is 1.13; banks usually only lend at 1.25 DCR or higher.  The most you can pay for the property is $139,711.21 (keeping 30 Amort.; 5% interest)  that gets you a monthly payment of $750.00 and brings your DCR up to 1.25.

The other thing is that your vacancy rate is less than 7%. If the property goes vacant for one month the vacancy rate will be higher than 8%. What is the vacancy rate for the area?

On the other head, this deal might work if you think the property will appreciate in value in a short period of time but I don't like speculative deals.

Kevin Zimmer · Answer

Daniel, nice to see you on BP.If you have run numbers on tons of deals your gut should start letting you know what is good. No money down, an unsecured note, and $120/ month cash flow?An infinite ROI!I did not see a number for property management, or are capital costs and PM grouped into maintenance?

Are closing costs built into your purchase price, and/or have you accounted for them separately?Is 155k market price or discounted.If market is the area appreciating or at least stable (I’m thinking yes since you said a 7% cap rate is good)

How did you come up with your expenses number? Is there any deferred maintenance? How long have the tenants been there, and can the seller document the payment history?How many months are left on the lease?

I am not suggesting you over analyze this.I think you should pull the trigger.

Aaron Montague · Answer

@Daniel Karbownik

This deal probably isn't going to make you any money.  You haven't included a Cap Ex account to fix the roof, siding/paint, water heaters or HVAC system.  Even on a newer house that number is going to run you at least $150/month.

As @Patrick Liska mentions there are several items not included on the list.  $100/month isn't going to cover lawn care and snow removal IN ADDITION to leaky facets and other small repairs.

There is no PM support here.  What happens if you want to move away?  This should be accounted for as 10%, at least, of your monthly rent.  Even if you  manage personally, this should be your paycheck.

Simply put, do not do this deal.  Your numbers don't work and this will cost you a fair amount over the long run.

Patrick Liska · Answer

Daniel,

have to know how the numbers break up, as Kevin was saying, did you include management, electric, gas, lawn care, leasing fees, water and sewer. if you do not hire a property manager are you taking care of managing the property yourself ? your time is money is $ 120 / month enough to pay for your time ?

Bobbi Martinez · Answer

Hi Daniel,

Congratulations on your deal!!!  I'm following your post to see what kind of feedback you get.  If you don't mind, I have a couple of questions...

1.  Is this your 1st deal?

2.  What made you decide to get your real estate lic?   Was it so that you would have quicker, better access to MLS?  So that you could save money on the deals?

I'm new, and was contemplating getting a real estate lic as well.  Would love to hear your thoughts on why you have gone about it that way, as I believe (if I'm not mistaken) not all Investors choose to be licensed in real estate.

Again congratulations and best of success in your deal!

Bobbi

Can somebody check my numbers?

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