I'm a newbie here and would greatly appreciate some feedback.
3 Unit Property
List Price 69,900
20% down (13980)
Loan 55,920 at 7% for 30yrs = 372/mo
Taxes 3087yr (258/mo)
Ins 1200/yr (100/mo)
Landlord pd utilities 6264/yr (522/mo)
Water/Sewer 700/yr (59/mo)
Vacancy (10%) 2550/yr (212.5/mo)
Capex (20%) 5100/yr (425/mo)
CASH FLOW 2118
CAP RATE 11.77%
The whole property appears well maintained. The roof and windows look newer. The exterior was painted a few ago also.
Am I doing this correctly? Am I missing anything? Am I being too conservative with things?
Thanks in advance for your feedback.
Hi @Jason Ruff. You're missing management expense. Even if you choose to do the work yourself (and I wouldn't recommend it), there's a real-dollar cost to collecting rents, ensuring on-time payment, dealing with late payers, handling repairs, etc.). Here in Atlanta, property management companies charge 8-10% of rents.
Also, I'm concerned about those landlord-paid utilities. They represent a significant chunk of your expenses and are entirely dependent on the habits of the tenants. How do you protect your profits if your residents start taking hour-long showers or leaving every light for days? At very least, you should look at several years of historical data to avoid any nasty surprises. Is sub-metering (each unit get its own bill) a possibility?
Lastly, I didn't follow all of your calculations, but your Cap Rate should be Net Operating Income / Current Market Value. Assuming your NOI ($6582) is correct and the property is worth $69,900, I get 9.41%.
I'm also a newbie, and kind of amazed you found a deal with such a Cash on Cash + CAP rate. :)
Is this a online listing or a private deal you discovered off-market?
I agree with Mitch - cap rate calculates to 9.4% approx.
Can you really get that kind of rent on a 70K property?
In my area, depending on the neighborhood and how nice the property is, yes, It is fully rented but I had yet to verify. Then the next day, the property was listed as contingent. Guess I keep looking.
All of those are great points to really take a look at (and will begin to examine them when I find my next prospect). Is a capital expenditure deduction of 30% a fair estimation of any "extra" expenses I might miss in my calculations? I deduct that on top of know expenses (taxes, ins, and other known monthly expenses).
This was an online listing but is now under contingency. Guess I should of acted quicker.
After deducting expenses from the income how did you get that cash-flow of $2118? Also did you account for closing cost?
Jason, I'm an investor located in Oneonta. I think we actually went to Delaware academy together. I have a very good contact who owns rentals in Otego and Unadilla that wants to get out after the last of his long terms leaves. Mount Upton is going to be a high vacancy town. We can find you much better deals close by. I just received a call from a fellow in Walton today. 7 units fully rehabbed and rented for $200k. If you would like, pm me and we can discuss some really nice deals I have seen recently.
After reading your profile again, I don't think we went to school together. My apologies, still would like to connect and possibly pass you some deals if you would like