First Duplex Analysis - Am I missing anything?!

21 Replies

Good evening. I've been a lurker on this site for about a year or so. I'm finally in a position where I feel that I can successfully purchase my first property. My plans is to buy and hold rental properties. That being said, I've found a property that I feel is a good deal (assuming I did the numbers correctly) and want to get some feedback to be sure I'm considering everything. I've used the rental property calculator through BP and it seems good. Here's what I've got....

Asking price: $124,900 (I'd like to offer less to get a better COCROI)

After repair value: $124,900

Closing costs: $4,000

Repairs: $5,000

Down payment: 20%

Interest rate: 4%

Amortization: 30 years

Annual taxes: $1,423

Income: $1,300 total monthly

Utilities: $0 (paid by tenants)

Vacancy: 5%

Repairs and maintenance: 5%

Cap ex: 5%

Property management: 10%

Annual income growth: 2%

Annual property value growth: 2%

Annual expense growth: 2%

Sales expense: 6%

Am I missing anything here? With those numbers, I get $1,300 monthly income. $920.62 monthly expenses leaving me with $379.83 monthly cashflow. I'm also seeing a 13.4% COCROI (assuming I pay the full asking price). 

Please let me know if I'm missing anything. I'm pretty excited as this could be my first property to get me started in real estate and the first step towards financial freedom!

Insurance? A bit more if it's specifically landlord insurance and you want additional coverage. Or is that already factored into your tentative loan?

Originally posted by @Tim B. :

Good evening. I've been a lurker on this site for about a year or so. I'm finally in a position where I feel that I can successfully purchase my first property. My plans is to buy and hold rental properties. That being said, I've found a property that I feel is a good deal (assuming I did the numbers correctly) and want to get some feedback to be sure I'm considering everything. I've used the rental property calculator through BP and it seems good. Here's what I've got....

Asking price: $124,900 (I'd like to offer less to get a better COCROI)

After repair value: $124,900

Closing costs: $4,000

Repairs: $5,000

Down payment: 20%

Interest rate: 4%

Amortization: 30 years

Annual taxes: $1,423

Income: $1,300 total monthly

Utilities: $0 (paid by tenants)

Vacancy: 5%

Repairs and maintenance: 5%

Cap ex: 5%

Property management: 10%

Annual income growth: 2%

Annual property value growth: 2%

Annual expense growth: 2%

Sales expense: 6%

Am I missing anything here? With those numbers, I get $1,300 monthly income. $920.62 monthly expenses leaving me with $379.83 monthly cashflow. I'm also seeing a 13.4% COCROI (assuming I pay the full asking price). 

Please let me know if I'm missing anything. I'm pretty excited as this could be my first property to get me started in real estate and the first step towards financial freedom!

While I certainly don't know your market, or what is available, I can't say these numbers get me all that excited. At full asking, this is around a "1%er" (as I call them), which means it will likely carry itself, but not much more. 

Some of your expenses seem a bit low, which makes me believe the property is relatively new, or in excellent shape - is this the case? The rule of thumb around here from what I have gathered is to do a 10% cap ex, 10% maintenance. This might not be the case every month, but the idea is that when you look at the property through a multi year window, this tends to become the case. Is trash included in taxes?

I hope that helps!
Filipe

Thanks for pointing that out. Adding insurance brought my monthly expenses up to $1003.62 with a monthly cash flow of $296.38. The deal came down to 10.47% COCROI. The monthly cash flow isn't bad, but I'd like to get at least 12% ROI. What number do you shoot for? I ran the numbers again with a purchase price of $114,900 and that brought my COCROI to 12.55%. Not too bad...

Originally posted by @Filipe Pereira :
Originally posted by @Tim B.:

Good evening. I've been a lurker on this site for about a year or so. I'm finally in a position where I feel that I can successfully purchase my first property. My plans is to buy and hold rental properties. That being said, I've found a property that I feel is a good deal (assuming I did the numbers correctly) and want to get some feedback to be sure I'm considering everything. I've used the rental property calculator through BP and it seems good. Here's what I've got....

Asking price: $124,900 (I'd like to offer less to get a better COCROI)

After repair value: $124,900

Closing costs: $4,000

Repairs: $5,000

Down payment: 20%

Interest rate: 4%

Amortization: 30 years

Annual taxes: $1,423

Income: $1,300 total monthly

Utilities: $0 (paid by tenants)

Vacancy: 5%

Repairs and maintenance: 5%

Cap ex: 5%

Property management: 10%

Annual income growth: 2%

Annual property value growth: 2%

Annual expense growth: 2%

Sales expense: 6%

Am I missing anything here? With those numbers, I get $1,300 monthly income. $920.62 monthly expenses leaving me with $379.83 monthly cashflow. I'm also seeing a 13.4% COCROI (assuming I pay the full asking price). 

Please let me know if I'm missing anything. I'm pretty excited as this could be my first property to get me started in real estate and the first step towards financial freedom!

While I certainly don't know your market, or what is available, I can't say these numbers get me all that excited. At full asking, this is around a "1%er" (as I call them), which means it will likely carry itself, but not much more. 

Some of your expenses seem a bit low, which makes me believe the property is relatively new, or in excellent shape - is this the case? The rule of thumb around here from what I have gathered is to do a 10% cap ex, 10% maintenance. This might not be the case every month, but the idea is that when you look at the property through a multi year window, this tends to become the case. Is trash included in taxes?

I hope that helps!
Filipe

Thanks for the advice Filipe. It's a newer property at 10-15 years (though I assume HVAC and water heater will be needed soon). I did not include trash. I was assuming it was paid by the tenant since they paid for the utilities. I will check into it. What number do you shoot for when evaluating deals?

Originally posted by @Tim B. :

Thanks for the advice Filipe. It's a newer property at 10-15 years (though I assume HVAC and water heater will be needed soon). I did not include trash. I was assuming it was paid by the tenant since they paid for the utilities. I will check into it. What number do you shoot for when evaluating deals?

I strive for 2%ers, but almost never find them. I usually have to settle in the 1.6-1.8% in my local CT market. I try to find something in that area, then find a silver lining that will allow me to get it up to or over 2%. 


As an example, I purchased my 4 plex for 200K last year. It brought in 3605 per month (1.8%). 1 Year later, I've done some work and it brings in around 4225 per month (2.1%)...makes for a very happy Filipe!

I feel like the numbers are OK. If the property is in good shape, I reserve 5% capex and maint., but I reserve 8.3% vacancy for the first year to have a one month cushion in case the tenant stays only one year. $200 per unit in a multi family is what I shoot for as a minimum, $300 On a single family.
Originally posted by @Jason DiClemente :
I feel like the numbers are OK. If the property is in good shape, I reserve 5% capex and maint., but I reserve 8.3% vacancy for the first year to have a one month cushion in case the tenant stays only one year. $200 per unit in a multi family is what I shoot for as a minimum, $300 On a single family.

 Thanks for the feedback. I'm going to tweak my numbers a bit for future analyses. 

it's definitely a good idea to get an actual quote for the insurance of the property and not an assumption. Good luck!

@Tim B. This is the way I look at what kind of Cap-ex I should be putting away every month. I will focus on the roof, but a similar process can be followed for other big ticket replacements:

You should know exactly how old the property is. Make it an input in your analysis tool as its an important piece of information.

Say the duplex is 10 years old, then you likely have another 5 years or so (assuming asphalt shingles and its the original roof) till you will have to re-roof. Say it will cost you $10,000 to get this done, then you need to reserve $167 a month, or 12.8% of monthly rents for the roof alone.

This percentage and monthly reserve will go down in the future, since you will have the advantage of a longer life span once you replace the roof. 

Its not a good idea, in my opinion, to throw a standard percentage to cap-ex as it can be misleading.

The moral of the story is, keep good cash reserves to do cap-ex work if they arise before your reserves are sufficient, accelerate your initial cap-ex reserve rate if you know that life-spans are coming to an end, and try to get the property at a discount to counter differed cap-ex.

So I've run the numbers again... the best I can get is around 15% CoCROI and just over $200 per door. Are people really getting $300+ per door and greater than 20% CoCROI? This is the best deal I've come across between the MLS, Facebook, and Craigslist in the last week or two.

What numbers do you guys shoot for? I also went to a courthouse auction today (showed up 5 minutes late due to poor directions and it was over). I'm hopeful that perhaps I can find a good deal there. Does anyone have any experience with auctions?

@Tim B. Are you buying Blue Springs area? I am familiar with that market as my sister lives there and not excited about this deal. At a minimum I like 1 percent of rents unless its practically a new build. I also think that you really need to post the why or background story in addition to the what or the numbers. Lastly if this is a MLS deal that should tell you its not a deal because it would have sold by time you finished posting deal.

Originally posted by @Charles Kao :

Tim B. Are you buying Blue Springs area? I am familiar with that market as my sister lives there and not excited about this deal. At a minimum I like 1 percent of rents unless its practically a new build. I also think that you really need to post the why or background story in addition to the what or the numbers. Lastly if this is a MLS deal that should tell you its not a deal because it would have sold by time you finished posting deal.

This is a deal in the KC metro and on the MLS (I too thought it would be gone if it were a good deal being on the MLS). The property follows the 1% rule, but I see several people talking about 2% or $300+ per door and over 20% ROI. That seems unreasonable (perhaps because the market is so high atm) unless you're buying a distressed property and rehabbing it.

The property is right at 11 years old with several new items (water heater, HVAC, appliances, etc). The only thing it really needs is a roof in about 10-15 years and HVAC on one of the units in 9-10 years. 

Have you been quoted 4 percent loan for this property? I’m guessing it’ll closer to 5.5 percent

The numbers have actually changed a little bit from what I initially wrote down. Here's the changes: 

I spoke with my bank and they quoted me 4.5-4.625% with a 25% down payment. I got a quote on insurance ranging from $57-72/month. After inspecting the property, I was able to figure the repairs needed to be only $500 for a patch to tile in the kitchen. I removed property management from my numbers. I did this as I figured it would just go into my cashflow. I thought I could pay for property management later as I get more equity in the property and grow weary of managing the property myself.

Always keep the 10% property management there. Even if you plan to self manage for now at some point as your portfolio grows you will want to hire that out and you need to have that expense calculated into the deal.

Quick math = $1,300 rent (tenant pays utilities) minus $400 ($200 per door for multifamily) = $900 times 100 equals $90,000.  that's the max i would pay for this property.

check if the rental income is low for the area.  perhaps the tenants have been there forever and the Landlord hasn't raised the rents in years.

I got lost when, in your analysis, you indicated that the asking price and ARV were the same...and it needed $5k in repairs. I'm just learning, but logic tells me it's overpriced or you are underestimating the actual ARV. I'd for sure go in under asking...or pass...

Not familiar with your market, but with $1,300 in monthly rents I wouldn't pay over $100k. Especially if it needs work. Just my two cents.

@Tim B.   I hate the 1%, 2% rule.  It does not apply unless you know the market.  If I am buying in the ghetto I expect 2% because capex and vacancy is higher.  If I am buying a brand new house or in a great area 1% is more appropriate.  Look at what the market is paying on average and then try to go better, but just know the further you go away from market the more deals you will have to analyze.  I am generally buying properties that are .25% better yield of rent/purchase price if I were to use that rule, and I try to always buy properties with low capex, or will have low capex once I am done finishing it.  if I am renovating it, I am getting my cash back out through a refinance, so at that point I am willing to take a much lower yield because my yield is infinite if I have none of my own cash into it. 

50% rule on this property would say that this is a bad deal. 1300/m in rent 650 to expenses leaving you with 650 to pay yourself and the mortgage. My first home I bought in 2011 had a mortgage of 90k with a 4.5% interest rate and was 640 a month PITI. Taxes were around 1400 a year there as well. I would recommend looking for something else.

@Charles Kao, thanks for the response! I appreciate the feedback. I've been looking into the BRRR strategy and am hoping to utilize that on properties, unless I can find a deal that makes sense.

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