Analyzing first deal

4 Replies

This will be my first deal.

A 3 Plex listed at $59,900. I plan to ask for less but I'm basing my #s off of the $59,900.

(They came down $10k over a month ago.)

These are currently occupied to HUD renters.

Rents for each unit:

Unit 1) $513

Unit 2) $450

Unit 3) $400

Total monthly rent= $1363

Annual NOI= $16,356

27.3% CAP rate

I don't plan to use property management on 3 units but for the future I will..

$1363 x .10= $136.30

50% rule:

$1363/2= $681.50

Property management

$681.50- $136.30= $545.20

Estimating Taxes/ Ins/ Mortgage On $59,900

= $383

$545.20- $383= $162.20/ 3 units

= $54.06 cash flow/ units

Is this a good deal? I know the rule of thumb is $200/ unit or the 2% rule. This is only $54.06 cash flow/ unit but a 2.27% rent return on the asking price.

Am I missing something? Have I over analyzed/ under analyzed? What are your thoughts on this deal? 

@Lauryn Meadows

2% rule does not work in all areas.  I have seen as low as $100 per door as a minimum.  

From what I have seen/read, the 50% rule is a very conservative number, and having a 2.27% rent return is great. How old is the property? Are there cap-ex repairs that need to be done on the property? (HVAC, roof, etc..) Do you have any history on the maintenance of the property to see if your estimate of $681/mo in repairs is accurate?

I'm going to look at the property this Friday and will know more in regards to cap ex repairs. I asked the listing agent and she did not answer. 

That leads to another question though. The property is pretty crummy on the outside. It could use a new porch and siding. Do you recommend spending the extra capital (if I can even get a hold of extra capital) on cosmetic repairs? I ask this because the units are rented to HUD renters and I don't think I'm able to increase rent. Would I be able to recapture my funds with a refi? Or would I just be eating into my cash flow by doing any cosmetic repairs?

I'm new to the real estate investment market as well. I have analyzed (probably over analyzed ) numerous properties using various metrics. I found that the Cash-on-Cash metric is valuable for evaluating an investment in a situation such as yours. Not sure what your putting down, but if your cash-on-cash returns are in the 18-20% range your in a good place. Being a HUD your rents will be capped so I don't see you gaining much return on your rehab investments other than to maintain your property for longevity.

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