ANALYZING PROPERTIES PART 2 QUESTIONS
Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes
Malabute & Company CPAs525 Reviews
ANALYZING PROPERTIES PART 2 QUESTIONS
6 Replies
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes9y
Put simply, your 30 minutes per property analysis will largely be: educated guesses. You CANNOT know what the "Annual Income Growth" or "Annual Expense Growth" or "Repairs", etc, will be!
But those (sometimes a lot less than 30 minute) "educated guesses" will help you hone in on WHICH of all those properties may be worth a closer look. You can then create specific thread/s to help you become more ACCURATELY educated regarding the numbers for a particular scenario. After responses come in, you'll hopefully be more informed about your previous guesses. BP members can be very helpful when it comes to things like: "In that LOCATION, Insurance will likely be double your figure" and so on. While you're just practicing, don't get bogged down.
But certainly, if your money is burning a hole in your pocket until you buy something, by all means get to know how you can find out the best/quickest (accurate) figures before you submit any FINAL/BEST Offer/s! (Until then, all your Offers should assume the WORST figures!) Cheers...
- Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes9y
Howdy @Jason Malabute
As @Brent Coombs said the 30 minute analysis idea that Brandon refers to is the initial Pro forma analysis. It does not include the actual numbers for all the items you listed. A lot of them will be discovered when you conduct a more in depth investigation and during the due diligence process.
I will provide a response to each of the 15 items you listed. But, first I have a few questions for you.
A. Have you developed a plan identifying the type of investing you plan on doing? Goals? Types of properties? Strategies to use? Price ranges? How you plan to finance? If you don't have a plan that answers these questions, then, you need to develop one.
B. Do you have a Realtor? If not you will need to get one that handles your targeted properties and areas of interest. The Realtor will be able to get a lot of the information you are looking for.
Here is my input to your listed items:
1. Closing costs: You should be able to find this out from a Realtor. However, they typically are 2 - 5% of purchase price.
2. Points charged by lender: Each lender is different. Find out when you search for financing.
3. Other charges by lender: Same as #2.
4. Utilities: Get this from Seller, Realtor, or call each utility that services that neighborhood.
5. PMI: Find out from the lender.
6. HOA: Find out from Seller or Realtor.
7. Insurance: Seller, Realtor, or call your agent for a quote for the property.
8. Garbage: Seller, Realtor, or service provider.
9. Other monthly expenses: There are a number of miscellaneous expenses that can occur. Some examples: Lawn care, Snow removal, legal, accounting, marketing, pest control, collections, to name a few. They can be anywhere from 5 - 10% of GSI. Also don't forget Vacancy and Property Management (you didn't have them on your list) 10% each.
10. Repairs: Most will use a percentage of the monthly Gross Scheduled Income (GSI) for this. 5 - 10% depending on the age/condition of the property and class of tenants. Once you get into due diligence you may be able to adjust this up or down.
11. Capital Expenditures: Again it is dependent on age, condition, and class of the property. It is wise to use a conservative approach to estimate CapEx. I use 10% initially in my Pro forma analysis. Once I have the property under contract I will have an inspection completed to identify any deficiencies and determine the useful life expectancy of major components/appliances. This allows you to develop a estimated overall cost and timeline when items will need replacing/upgrading. You can develop a more accurate CapEx calculation from there. $250 per month seems to be a good conservative amount.
12. Annual income growth: Determine after under contract and/or after purchase.
13. Annual PV growth: Same
14. Annual expense growth: Same
15. Sales expense: Find out from your Realtor when you plan to sell.
The bottom line is you will start your initial analysis with general estimates and a few good numbers. If it looks good you will update the numbers as you dig further into the property. Up until you actually purchase the property or walk away from the deal.
Hope this helps. :)
- Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes9y
Originally posted by @Brent Coombs:
Put simply, your 30 minutes per property analysis will largely be: educated guesses. You CANNOT know what the "Annual Income Growth" or "Annual Expense Growth" or "Repairs", etc, will be!
But those (sometimes a lot less than 30 minute) "educated guesses" will help you hone in on WHICH of all those properties may be worth a closer look. You can then create specific thread/s to help you become more ACCURATELY educated regarding the numbers for a particular scenario. After responses come in, you'll hopefully be more informed about your previous guesses. BP members can be very helpful when it comes to things like: "In that LOCATION, Insurance will likely be double your figure" and so on. While you're just practicing, don't get bogged down.
But certainly, if your money is burning a hole in your pocket until you buy something, by all means get to know how you can find out the best/quickest (accurate) figures before you submit any FINAL/BEST Offer/s! (Until then, all your Offers should assume the WORST figures!) Cheers...
"BP members can be very helpful when it comes to things like: "In that LOCATION, Insurance will likely be double your figure" and so on. While you're just practicing, don't get bogged down." Thank you this is gold! This is becoming clearer.
So are you saying just take an educated guess but before making an actual offer make sure you confirm your numbers with an agent?
Lastly, if you were in my shoes where would you get an estimated numbers if you were just "practicing"?
Malabute & Company CPAs525 Reviews - Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes9y
Originally posted by @John Leavelle:
Howdy @Jason Malabute
As @Brent Coombs said the 30 minute analysis idea that Brandon refers to is the initial Pro forma analysis. It does not include the actual numbers for all the items you listed. A lot of them will be discovered when you conduct a more in depth investigation and during the due diligence process.
I will provide a response to each of the 15 items you listed. But, first I have a few questions for you.
A. Have you developed a plan identifying the type of investing you plan on doing? Goals? Types of properties? Strategies to use? Price ranges? How you plan to finance? If you don't have a plan that answers these questions, then, you need to develop one.
B. Do you have a Realtor? If not you will need to get one that handles your targeted properties and areas of interest. The Realtor will be able to get a lot of the information you are looking for.
Here is my input to your listed items:
1. Closing costs: You should be able to find this out from a Realtor. However, they typically are 2 - 5% of purchase price.
2. Points charged by lender: Each lender is different. Find out when you search for financing.
3. Other charges by lender: Same as #2.
4. Utilities: Get this from Seller, Realtor, or call each utility that services that neighborhood.
5. PMI: Find out from the lender.
6. HOA: Find out from Seller or Realtor.
7. Insurance: Seller, Realtor, or call your agent for a quote for the property.
8. Garbage: Seller, Realtor, or service provider.
9. Other monthly expenses: There are a number of miscellaneous expenses that can occur. Some examples: Lawn care, Snow removal, legal, accounting, marketing, pest control, collections, to name a few. They can be anywhere from 5 - 10% of GSI. Also don't forget Vacancy and Property Management (you didn't have them on your list) 10% each.
10. Repairs: Most will use a percentage of the monthly Gross Scheduled Income (GSI) for this. 5 - 10% depending on the age/condition of the property and class of tenants. Once you get into due diligence you may be able to adjust this up or down.
11. Capital Expenditures: Again it is dependent on age, condition, and class of the property. It is wise to use a conservative approach to estimate CapEx. I use 10% initially in my Pro forma analysis. Once I have the property under contract I will have an inspection completed to identify any deficiencies and determine the useful life expectancy of major components/appliances. This allows you to develop a estimated overall cost and timeline when items will need replacing/upgrading. You can develop a more accurate CapEx calculation from there. $250 per month seems to be a good conservative amount.
12. Annual income growth: Determine after under contract and/or after purchase.
13. Annual PV growth: Same
14. Annual expense growth: Same
15. Sales expense: Find out from your Realtor when you plan to sell.
The bottom line is you will start your initial analysis with general estimates and a few good numbers. If it looks good you will update the numbers as you dig further into the property. Up until you actually purchase the property or walk away from the deal.
Hope this helps. :)
Thank you. This helps a lot. My goals are: find a duplex in my target market (Culver City, Silver Lake, or Hollywood area). I need a cash flow of $ 200 for the second unit. Price range $600-800k (closer to $600k). $200k down. 30 year loan. Fixed interest.
I am in the process of trying to get pre-approved. My lender said he'll introduce me to the agent that he works with after I get approved.
As per the annual income growth, annual PV growth, annual expense growth, and sales expense will not affect the calculations and projections right?
Malabute & Company CPAs525 Reviews - Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes9y
@Jason Malabute, I just looked up some previous threads dealing with deal analysis in CA. Here's one that may be of interest to you, because it too was dealing with a duplex, a bit more pricey than you're asking about:- https://www.biggerpockets.com/forums/48/topics/356...
Whether any of the OP's "guesses" there were/are accurate or not I couldn't say, but you'll notice that it was VERY easy for me to find some SOLD (practice) comps - which is a also vital factor to delve into closely. Of course, once you go from push to shove, fudging the figures won't cut it...
- Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes9y
Originally posted by @Brent Coombs:
@Jason Malabute, I just looked up some previous threads dealing with deal analysis in CA. Here's one that may be of interest to you, because it too was dealing with a duplex, a bit more pricey than you're asking about:- https://www.biggerpockets.com/forums/48/topics/356...
Whether any of the OP's "guesses" there were/are accurate or not I couldn't say, but you'll notice that it was VERY easy for me to find some SOLD (practice) comps - which is a also vital factor to delve into closely. Of course, once you go from push to shove, fudging the figures won't cut it...
Sorry for late response. I got a new computer. This is great. Thank you.
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