What am I doing wrong?
Hello - I saw a homepath property yesterday where they have completely redone the interiors, painted and have a full finished basement. The subject property is a 2 bed, 1.5 bath townhome. I ran the numbers but they don't seem to add up. What am I doing wrong?
List price = $169900
Gross Operating Income = $15000 (Rent of $1500 a month minus Vacancy allowance for 2 months)
Total Expenses = $9980 (Accounting ($300), Insurance ($600), Legal ($300), Repairs and maintenance ($1080 or 6% of rent), Taxes ($5781), HOA ($1920))
Net Operating Income = $5019
Annual debt service = $7392 (20% downpayment, 4.25% 30 yr mortgage)
Capital costs = $0 for first year (6% of rent per year after that)
Cash flow before taxes (Negative) = -$2373 or -$198 per month
Comparables are showing the following:
1. similar town house which is fairly well done sold for $96k in March 2016,
2. a fully spruced up townhome in the same neighborhood sold for $178k in March 2016
3. similar townhouse sold for $155k in Feb 2016
4. similar townhouse sold for $200k in Jan 2016
5. similar townhouse sold for $145k in Sep 2015
In order to obtain a positive cash flow of around $100 per month, I need to pay $85k for this house which will reduce annual debt service down to $3768. Even averaging out the comparables comes to $155k not withstanding the fact that it is probably going to be an insult to both the listing agent and my buyer's agent who has spent several hours taking me on property tours to offer this low for the house. Where am I going wrong in my analysis? Am I factoring in expenses I should not be factoring? Does this property just not make sense given the numbers?