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.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here