My first deal analysis, please critique (Dallas)
For my very first deal, I'm considering going turn-key through a PM. He sent me a list of 5 and there's one I like, so I'm trying to run some #s on it to see if I have learned anything.
It's a 3/2 newly updated all around, good B neighborhood with good schools for $155,000. Rent-o-meter shows $1300/mo.
Prop taxes $223
Insurance $67
PM $95
Advertising $54 (half month rent/12)
Maintenance, capex & vancancy I said 8% each, so $312
Total Expenses $751
Mortgage payment $523
So cash flow before taxes of $26.50/month. Thoughts? Anything I'm missing?
That's a question you've got to ask yourself. Is $26.50/month worth it? Assuming you put 20% down on the house ($31,000), your yearly cash flow is only $318 ($26.50 x 12 months). That's only a 1.02% return on the cash you invested for that year ($318 / $31000). In my opinion.. No, the deal is not worth it, you can earn 6% on your money by just sticking it in a fund for the stock market so why not shoot for more?! But you did do a good job of including other expenses in there. Let me know if there's anything that needs clarification.. Hope this helps @Brian D. !
I would ask the PM what he thought the rent would be and show him your other numbers. My experience is that PM charges an extra amount to find new tenants.
I am seeing a cap rate of 5% which is low. Capital expenses are not part of net operating income nor in the calculating of the cap. rate.
Good Luck
Bill
@Brian D. I can tell you how to fix the problem. You are in the Metroplex. You are wanting to do buy and hold.
Do not under any circumstances pay retail to a turnkey company here!
Find your own deal.
You can find houses that will rent for $1300 a month for $100,000 in the Metroplex.
Originally posted by @Brian D.:
So cash flow before taxes of $26.50/month.
I agree with a fellow poster, is this worth it to you? I am going through the same process as you and my goal is to get as close as I can to $100/door. To me, that is what makes my time and energy worth it. Just my $0.02. Good luck.
Originally posted by @Bill Jacobsen:
I would ask the PM what he thought the rent would be and show him your other numbers. My experience is that PM charges an extra amount to find new tenants.
I am seeing a cap rate of 5% which is low. Capital expenses are not part of net operating income nor in the calculating
I included Advertising, which is the listing fee the pm charges to get a new tenant. Thanks.
Brian, you don't need a PM for a single house. Especially if you are local.
Pass, and keep it moving. There are much better looking girls (or guys) in this party :) If you are in the $155K purchase range with good schools, you should be in ~$1850+ range IMO. This is based on what I see in my local area.
I always use the 1% Rule. If a property costs $150k, then it needs to rent for a minimum of $1,500 per month. Of course that is a rule of thumb and doesn't apply in all markets.
I agree with the other posters. There are plenty of fantastic deals out there, you just have to find it. Don't rely on others; you are your best asset.
Think about your goal. Is your goal to have $5k/mo in passive income? If so, you would need to purchase 200 properties bringing in $25/mo each (after all expenses).
If you purchased properties that brought in just $100/mo each, the number of properties you woukd havr to buy would drop 75% to only 50 properties.
Now if you were really good and bought only properties that brought in at least $250/mo each, you would now only need 20 properties to get to $5k/mo in passive income.
Originally posted by @Account Closed:
@Brian D. I can tell you how to fix the problem. You are in the Metroplex. You are wanting to do buy and hold.
Do not under any circumstances pay retail to a turnkey company here!
I'm a little confused. Are you saying don't pay retail, don't do turnkey, both? What is it about DFW? I've been under the assumption (likely wrongly) that this is a hot market right now and most stuff is going at or above listing price.
Is this a situation where you can make an offer on the property or do you have the feeling what the fixed price is?
If you're learning, you could calculate what an acceptable price would be. Or if you made an unusual deal with seller-side financing or some other exotic strategy. Not that the seller might accept it, but if you are up front about why you'd pay less, you might get the seller to rethink whether they are overpriced.
Also, what is 'Rent-O-Meter'? How did you determine that number? Just curious there.
I'm learning this too. :D
Originally posted by @Jason Emery:
Is this a situation where you can make an offer on the property or do you have the feeling what the fixed price is?
If you're learning, you could calculate what an acceptable price would be. Or if you made an unusual deal with seller-side financing or some other exotic strategy. Not that the seller might accept it, but if you are up front about why you'd pay less, you might get the seller to rethink whether they are overpriced.
Also, what is 'Rent-O-Meter'? How did you determine that number? Just curious there.
I'm learning this too. :D
It's just on the MLS. I can make an offer, sure, but I haven't seen the property yet to see if it's as updated as the listing says.
rent-o-meter.com I discovered on the forums here last night.
I have to agree with the opinion at large here that the 1% return on your money just isn't worth it. You can do better than that!
I would say there's enough deals in the DFW where you can bypass the turnkey properties and find yourself a better deal. There are also plenty of deals under retail if you look in the right spot. Networking is a great option to find deals. I could also recommend a great agent in DFW who works with investors alot.
Also for the rent amount, I would gather rates from a number of different places to be a little more accurate. Talking to property management companies and looking at comparable properties are a great way to get a more precise number!
Let me know if you'd be interested in talking to my agent!
Hope this helps, good lucks!
There are some investors that do not agree with this, but if you are wanting to invest in real estate...Never pay retail.
A hot market means that retail houses are selling quickly. If you buy a distressed property and flip it, then you shouldn't have to wait long to sell. It means that people looking to move and buy a new house are paying market price. It means if you are wanting to sell your family home that it won't be on the market long. It does NOT mean that you should have to pay retail or more for an investment property.
$26 dollars is not much of a return on your money and CAPEX is not something you add into your numbers.
Based on some of the things I'm seeing, you should do a little more research and educate yourself a little more before you drop money on your first property.
like others have said, capex is not part of monthly expenses. So if you add that back to cash flow you get $130. If it's turn key it shouldn't need capex and maintenance should be minimal
$26.50 per month cash flow? That's a rounding error in a pro forma. One unexpected garbage disposal replacement wipe out any cash flow for the whole year. I'm not clear why you would take on the risk of owing a property with basically no cash flow unless you have some reason to believe that it has built in equity or strong appreciation potential.
Yeah Brian,you need to run your numbers again.Capex is not part of monthly calculations,8% vacancy and maintainance should be no more than 5%.Check your property taxes again,how much is it yearly? It can't be that high on a $155,000 house,can it? Also,screw that half off the first months rent deal until you seriously get desperate.Don't flush $650.00 down the toilet without giving it a chance. Recalculate and you may find the deal tastier.
@Brian D.. Do not get bogged down in the details about capex. This deal is not even in the ballpark of a good deal in the Metroplex. You can get $1300 for a house you paid $100,000. Why would you consider paying $155,000?
Originally posted by @Brian D.:It's a 3/2 newly updated all around, good B neighborhood with good schools for $155,000. Rent-o-meter shows $1300/mo.
Unless you're speculating on appreciation, no need to even look into this property.
$155k purchase price for 1300 a month rent? That means the purchase price equals 119 times the monthly rent. Way off. That number needs to be less than 100 before I'd even bother running numbers to see if I like the deal.
Originally posted by @Simon Shih:
There are some investors that do not agree with this, but if you are wanting to invest in real estate...Never pay retail.
A hot market means that retail houses are selling quickly. If you buy a distressed property and flip it, then you shouldn't have to wait long to sell. It means that people looking to move and buy a new house are paying market price. It means if you are wanting to sell your family home that it won't be on the market long. It does NOT mean that you should have to pay retail or more for an investment property.
$26 dollars is not much of a return on your money and CAPEX is not something you add into your numbers.
Based on some of the things I'm seeing, you should do a little more research and educate yourself a little more before you drop money on your first property.
Thank you for the response and clarification about hot markets. I'm getting the message here
- 1. Don't pay retail
- 2. Capex isn't an operating expense
- 3. I need to learn more
(3. I already knew)
Originally posted by @Brandon Battle:
Yeah Brian,you need to run your numbers again.Capex is not part of monthly calculations,8% vacancy and maintainance should be no more than 5%.Check your property taxes again,how much is it yearly? It can't be that high on a $155,000 house,can it? Also,screw that half off the first months rent deal until you seriously get desperate.Don't flush $650.00 down the toilet without giving it a chance. Recalculate and you may find the deal tastier.
Thanks for the capex, vacancy and maintenance suggestions. Yes, property tax is $2675/year. This is Texas: no income tax, but high property taxes (please don't let this get off on a side-tangent).
So if I do 8% vacancy, 5% maintenance, no PM fees or advertising, that's $318/mo cashflow, or 12% on initial investment of $31k down.
Originally posted by @Account Closed:
@Brian D.. Do not get bogged down in the details about capex. This deal is not even in the ballpark of a good deal in the Metroplex. You can get $1300 for a house you paid $100,000. Why would you consider paying $155,000?
Thank you for the replies. I've just started looking and am looking in the mid-cities area just because it's what I know best and could easily keep an eye on. I've not seen anything yet around here that's $100k, unless I go to maybe Arlington or Irving. Granted this is only me looking MLS or craigslist. I don't want to get into "C" class properties if I can help it. Also, it may be that this house could rent for $1400, I'm only going by the median on rent-o-meter.
I do not think this is a viable deal because you want to make at least 10% for all the headache. Ask him to show you the cash flow and he may go down on the purchase price.