Help a newbie analyze a potential property?

2 Replies

Hello to all out there in the BP community! I'm a very new investor and am wondering if I could get some help analyzing a potential property - I've been using an excel spreadsheet I found here on BP, but being new, I'm certain I'm missing something.

The property is a 2nd floor 3/1 condo, ~1200 sq ft.

Asking price $165,000

Assuming a 30yr loan at 5%, with a $45,000 down payment - total mortgaged amount $120,000

Assumed monthly mortgage payment: $591

Assessed monthly rent: $1450 (based on Craigslist comps, pad mapper, and HUD fair rental value sites)

Essentially turn-key, no immediate rehab necessary.

Annual rent: $17,400

Vacancy (5%): -$870

Taxes: $1200

Insurance: $500

Prop Mgmt: $1800

Maint: $1000

Utilities: $2400

Advertising: $500

Misc: $500

I get a total operating expenses of: $9100

NOI: $7430

Annual mortgage payments: $7086

Annual cash flow: $344

CAP: 5%

Looks like I'm not getting to the 1% rule, sitting at about .87% with the rent.

Monthly, with rent of $1450, minus mortgage, HOA, utilities, prop mgmt, etc, I seem to be coming up with monthly cash flow of $200, but the other annual costs are what's bringing the annual cash flow down.

Based on the monthly analysis, it's not great, but not horrible, but based on the annual numbers it doesn't really seem worth it.

What am I missing?

Thanks in advance!

@Mandy Ellett - the property management number seems high - even higher than the "normal" 10%. That might save you a few dollars on your expenses.

You mention HOA in one of your last sentences, but I don't see it listed in your expenses up above. If there is an HOA fee, what does it cover? You might find that you don't need as much of a maintenance amount if the HOA covers CapEx items, exterior maintenance, etc.

$2400 in utilities for a SFR seems high - I would never pay utilities for a single rental, and would only pay minimal for smaller multi family. When comparing local rentals, what is the "normal"? Does landlord usually pay utilities, or does the tenant? If the tenant usually pays, and the average rental is $1450 along with tenant paying utilities, you have two options: pay the utilities but raise the rent, or have the tenant sign up to pay utilities. Either way, you shouldn't be paying the better part of 14% for utilities on a condo.

If your numbers are accurate, then I would walk away from this deal.

However, I feel that you can save on PM, Maintenance (use 8% maintenance if HOA covers the rest), and utilities. If you can bring those expenses down reasonably, then you might have a deal

@Ben Wilkins , thanks so much! Your insight made the difference and now this makes a lot more sense. The reason I'd had the utilities is that I'd spent the day prior analyzing multi-families where the utilities were the owner responsibility, and plugged it in out of habit. You're absolutely right that in a condo/townhome like this the tenant should be paying the utilities.

The HOA fee did get left out and was $100 a month but my info is limited on what it covers beyond area beautification.

A question on the PM costs - wouldn't a 10% rate be $145 a month? The numbers I ran were for $150 a month as a more conservative estimate. If I'm missing something here, please help me see myself better.

I also then, based on @Brandon Turner 's advice from last night's webinar, simply ran how much I'd need to offer in order to get to a 2% return (was very stuck in the rut of "having" to go with asking price).

End result with reduced maint to $1000, tenant paying utilities (and a fudge factor of $400), and a slightly reduced advertising budget, all else being the same, I would need to offer less than $160K to hit 2%.

Thanks!