My first deal (maybe). Any thoughts?

Question

I'm looking at a college rental property close to my home. I have made some calls and left messages today as I'm searching for PM quotes but I know a handyman so, since I live super close, I may try to do this myself (I have read many horror stories, that's why I'm also getting PM quotes).

I'm hoping someone could help me analyze this deal please.  It's a home built a bit more than a century ago.  Im waiting to hear when the roof was last replaced but the furnace was replaced in 2015.

The property is already rented for the 2017-18 school year.  6 bedroom place which collects $24,000/yr collected in 2 equal lump sum payments.

Expenses are:

$1,684 in Taxes last year

$892 for Instance last year

$388 maintenance last year

$1,972 in Utilities (id pay Gas, electric, sewage, water)

I haven't yet purchased a property so I welcome suggestions as to how much I should save for maintenance as well as CapEx.

The asking price (not yet negotiated but assume I pay full price) is $187,000 and I won't need to do any repairs Day 1. I will put 25% down. Assume 4.25% mortgage rate, which means $690/month mortgage payment.

Based on these numbers it looks like I will collect $24,000 and my expenses are $18,152 (not including closing costs, capEx and anything else you can see which I may have missed).   would anyone be willing to analyze this deal for me please?  Thank you

Bob Okenwa · Answer

@Marty Gold

Based on the numbers provided, that would be a correct estimate. As always, double check your numbers to verify I didn't drop the ball along the way or something. But just offering my 2 cents on your situation. The maintenance and CapEx are going to be the biggest determination of your cashflow since you have a good handle on what the place will rent for. If CapEx and maintenance don't chew up profits, you could easily go past 10%. But that if is a big IF on a home over 100 years old being rented to college students. I would estimate on the conservative side to be safe and see if the numbers match what you're looking for. Better to be safe than sorry.

Bob Okenwa · Answer

@Marty Gold

If you haven't already done so, you should use the rental calculator on BP to get a more detailed look at the numbers you provided. Not sure how you came to 18k in expenses though. As far as maintenance and repairs go, most people would estimate between 5% and 10% a month for each depending on the age and condition of the home. The 50% rule says half of your monthly income will go towards expenses so you should expect around 1k a month in expenses. Depending on how aggressive or conservative you are with your numbers, you can expect somewhere near $250 a month (conservative) to $450ish a month (less conservative) based on the numbers I ran. Of course you'd want to verify this yourself, that is why I suggested using the BP Rental Calculator.

Kristie Eddy · Answer

@Marty Gold Hi Marty! I have 5 units all renting to college students and I am very carefully to not pay the bills for them.  I only pay water on the multi that would cost me $8000 to individually meter, but for the SFH homes, I pay ZERO bills.  All bills/utlities are on the tenants.  We are in Arizona and this is extremely common.  I would also echo above - the only way I was confident closing on these properties was via BP and the rental property calculator.  I knew the numbers as best as possibly and where we did and did not have room in the deals. I should also say we bought one flipped home and spent close to $2000 on ancillary costs, blinds, some rubbish removal in the yard, light landscaping, etc. (although you'd think flipped is perfectly ready to go). Hidden costs are real so don't cut this deal too tight, estimate over on that basement unit!

Marty Gold · Answer

Bob,

So if I assume an initial cost of $52,000 (25% down plus closing costs) and assume the middle number of what you suggested $350/mo, that will result in 8% ROI.

Do I have that correct?

Ty

My first deal (maybe). Any thoughts?

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