Analyses for my first Buy&Hold

[Oleg Shalumov]

Hello BP members,

I found a following deal and wondering if it make sense to have it as my first Buy&Hold.

It is 2bds, 1bath apartment with the following numbers:

Price $180K

Mortgage after 20% down with 4.5%: $811 monthly 

HOA: $759 monthly

Current Rent: $1,725 monthly

Insurance: $250 yr (optional)

Vacancy: 1month in 2 years

Elect: paid by tenant

CapEx and all external charges covered by HOA fees.

So, Income ($1,725) - Expenses ($811+$759+$20=$1,590) = $135 monthly profit.

[Jeff Bridges]

You pretend like you are accounting for things you know are important like vacancy, insurance, and capex, but your calculations are not adding up. Its like you know what you need to be considering, but refuse to acknowledge it in your financial due diligence. let me show you below:

1725rent-811mortgage-759Coopfee=$155/month before vacancy/insurance/capex/Management fees

$155/month= $1860/year cashflow best case scenario

lets say you had your first vacancy next year. Your $1860 cashflow would be reduced to $135/year since you lose $1725 (one months rent) and you have to continue paying mortgage/coop fee and insurance regardless. If you had 1 month vacancy every year in a bad streak, you just wiped all your cashflow for the year just from a simple vacancy. Insurance, which is not optional, would put you into negative cashflow territory. finally, the coop fee inevitably will go up since it includes all utilities and you are just now subsidizing the tenants utilities. That you cant control and will also erode your cashflow.

landlord Insurance is not optional. even though your coop has a master policy, all of the appliances are your personal property. If there was a fire, you would be on the hook for replacing your own appliances if you had no insurance. You also need to read the master policy and see what it would cover. You should also talk to a insurance broker and have them review the policy with you to eval your exposure in the event of a catastrophic issue. insurance also covers lost rent and it also covers liability if a renter injured themself in your unit and sued you. You need a landlord policy with liability insurance protection when you become a landlord. You're not getting normal homeowners insurance, which you might have calculated for 250.

yes the roof is not your responsibility, but repairing the fridge or having the disposal replaced is totally on you. replacing appliances is also on you when they finally die. lights, faucets, toilets, flooring, ceiling fans all have a finite lifespan. Thats your responsibility. capex is smaller than a house, but its still there... I didnt even bother to add this 500-1000 a year you might spend on repairs because i stopped when cashflow became negative above after insurance and vacancy. but you should add this for future unts you analyze. good luck.