Next deal analysis- Feedback appreciated!

6 Replies

Hey guys, I'm starting to get my feet wet with investing. What do you think of this deal? Am I missing anything? I plan to owner occupy one side to start out, but numbers are assuming its fully rented..

$225,000

5% down

I really don't know the market. Have you considered a closing cost? Rehab cost? Water and sewer cost? SInce you are going to living in it, are you gonna put down an FHA loan? If so you have to include an additional PMI charge as well.

I don’t really know the area of the market but honestly the numbers seem too good, but that is just my thought on it. Let’s see what others think of it. 

Good luck! :))) 

One thing I notice is, from what I can see on the first pic, you did not include cap ex. I would recommend of accounting for 10% cap ex, as well as, 10% for repairs. This can really come back to hurt you when you didn't count for it and you then later have a roof to replace or an HVAC system to replace.

@Amir M. closing costs are factored in. No rehab costs. I’m going to owner occupy, so 5% down with no PMI is great.

I’ve accounted 10% total for capex and repairs. There will be a brand new roof put on at closing.

Howdy @Collin S.

You need to provide additional information for us to conduct an adequate analysis.  

What type property is it.  2, 3, 4 units?

What are the current rents for each unit?  Which one will you occupy?

How old is the building?  What is the current condition?  Completely rent ready?  No work at all needed?

You need more expenses listed.

CapEx and Maintenance are two separate items and should be accounted for that way. So I assume you are saying 5% for each. Unless you know for sure all systems, components, and appliances are in top condition or new I would increase the CapEx to 10% until you have the property inspected. An inspection will provide you with a more accurate evaluation of the current condition and life expectancy of all major components and appliances. From the report you will be better able to determine a more realistic CapEx reserves requirement.

Property Management should be included in your analysis.  Even if you plan to self manage it is strongly recommended to include the expense for two reasons.  First your time is worth something.  Second, if you are planning to build a portfolio of properties you may need to have PM at some point in time.  You will want the property to still cash flow when that happens.  If you do not include it now you may regret it later.  Besides if you self manage that expense really doesn’t occur.  Add 10% for PM.

Utilities.  Are all utilities paid by tenants?  In multi family properties there still can be common areas covered by the owner

PMI. You will have to pay PMI as long as your equity is below 20%. With only a 5% down payment you obviously are below 20%.

There are multiple other miscellaneous expenses that will eat into your cash flow.  Lawn care, Pest Management, accounting, legal, etc.  Add at least 5% for Misc. expenses.

What is the interest rate for the loan?

You need to be realistic and stay conservative in your analysis.  If the actual expenses are lower then all the better for you.

Originally posted by @John Leavelle :

Howdy @Collin S.

You need to provide additional information for us to conduct an adequate analysis.  

What type property is it.  2, 3, 4 units?

What are the current rents for each unit?  Which one will you occupy?

How old is the building?  What is the current condition?  Completely rent ready?  No work at all needed?

You need more expenses listed.

CapEx and Maintenance are two separate items and should be accounted for that way. So I assume you are saying 5% for each. Unless you know for sure all systems, components, and appliances are in top condition or new I would increase the CapEx to 10% until you have the property inspected. An inspection will provide you with a more accurate evaluation of the current condition and life expectancy of all major components and appliances. From the report you will be better able to determine a more realistic CapEx reserves requirement.

Property Management should be included in your analysis.  Even if you plan to self manage it is strongly recommended to include the expense for two reasons.  First your time is worth something.  Second, if you are planning to build a portfolio of properties you may need to have PM at some point in time.  You will want the property to still cash flow when that happens.  If you do not include it now you may regret it later.  Besides if you self manage that expense really doesn’t occur.  Add 10% for PM.

Utilities.  Are all utilities paid by tenants?  In multi family properties there still can be common areas covered by the owner

PMI. You will have to pay PMI as long as your equity is below 20%. With only a 5% down payment you obviously are below 20%.

There are multiple other miscellaneous expenses that will eat into your cash flow.  Lawn care, Pest Management, accounting, legal, etc.  Add at least 5% for Misc. expenses.

What is the interest rate for the loan?

You need to be realistic and stay conservative in your analysis.  If the actual expenses are lower then all the better for you.

Thanks John, I will provide clarification:

The property is a 2 unit- a 3/2 house with a 1/1 detached mother in law apartment. I plan to occupy the house and STR rent the 1/1( house hack) to start off. The building is 1920's but has been remodeled. We were able to work in a new roof (both buildings) and small foundation issue on 1/1 to be fixed out of seller's proceeds at closing. It is rent ready. We are post inspection.

I have accounted for lawn care, pest mgmt, and tenants will pay utilities.

The loan is 5% down with NO PMI. The only cost not built in would be 10% for PM costs. With PM @ 10% factored in, this would cash flow about $300/month.

@Collin S.

Obviously it is a Conventional Bank loan and not FHA. You are probably paying a little higher interest to offset not having Mortgage Insurance. I think that is a good thing. A lot of new investors do not realize that is possible. Is there any requirements on how long you have to occupy the property (like the FHA 1 year)?

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