First Deal Analysis Feedback

10 Replies

Hello, all! I just made my first deal analysis on a property and wanted to get feedback and your opinion on the numbers.

The house is a 3-bed, 2-bath, 1559 sq ft single family home in Houston TX. The house is in a B- neighborhood. Most of these numbers are very conservative.

Sale price: $150k

2016 Appraised Value: $102,625

Market value: $123, 872

Offer Price: $92,000

The following are yearly estimates

Annual Potential rental income: $16.8k (1400/month)

10% Vacancy: $1680

Annual Property Insurance: $1200

Annual Accounting & legal: $1000

Annual Advertising: $100

Annual Lawn and Grounds Keeping: $500

Repair and Maintenance (10%): $1680

Annual Misc: $500

Mortgage (30 yr., fixed, 5%): $5928 (494/month)

Initial investment: 0

Cash Flow before depreciation: $3245 /yr.

I wanted to offer about 70% of the market value of the house in case I get a hard money loan/private money and need to refinance. The house doesn't really need any rehab, but I don't have much money that I can invest right now which is why I would need the whole purchase price of the house financed. What do y'all think? I used very conservative numbers for my estimates and most of these numbers I would anticipate to be better (like less vacancy rate, more rent per month, and lower interest on the mortgage because of my credit score).

I don’t know what the accounting, legal and advertising are in there for. With a single family you shouldn’t need any of that.

It looks like a good deal to me but I doubt they’ll sell something to you for 70% of what they have it listed for. Can’t hurt to ask though!

Also I think it’s going to be difficult to get into this for 0 down.

Why not go for an owner occupied loan and move out after a while? Or house hack and live with some buddies?

Originally posted by @Jorge Quintero :

@Derek Kirkwood sorry I forgot to include them! They are $2295 a year 

There goes two thirds of your supposed cash flow! Can you afford to make mistakes like that?

By the way , $92k is about 75% of "market value", not 70%!

(You can't make up a "sale price" that's higher than what you reckon "market value" is!)

Good luck finding a Lender who'll take all the risk by lending you 100%! 

And then, good luck finding a Lender who'll appraise it the same as what you'll need it to be!

@Brent Coombs I should've mentioned that the final cash flow number provided already takes into account property taxes. So the cash flow is still $3245. I was also considering maybe getting an FHA loan and renting out the other two bedrooms for $750 each. I would have to pay for utilities (~2400/yr), but I would be living for free and making some profit on the side.

@Jorge Quintero The math is not adding up here. With all the expenses you have listed plus the 2295 taxes your monthly expenses add up to 7,275 per month. Your gross operating income with 10% vacancy is 15,110 which leaves an NOI of 7,845. After subtracting the debt service of 5,928 you are left with 1,917 cash flow. If I'm wrong please show me how.

I don't want to discourage anyone, because as the saying goes, where theres a will theres a way. I think if you are motivated and persistent enough you could make a SFR deal work. But, there are a lot of ways this particular deal could go south. Like others have said I don't think getting 100% financing for less than 5% interest rate is realistic. Maybe do an FHA loan on a deal that you could pay the mortgage with your W-2 income, then execute your plan of moving in two roommates. Might be a great way to learn how to be a land lord. Then if you are unable to find roommates you can still afford the mortgage.

75% Vacancy rate is more accurate imo over the long haul. That's conservative and better percentage to use when evaluating a property! 

Originally posted by @Shawn Chaconas :

75% Vacancy rate is more accurate imo over the long haul. That's conservative and better percentage to use when evaluating a property! 

Why do you believe 10% vacancy allowance is too low? 

[75% vacancy = "war zone", or hopeless property management! Maybe you meant 25%?*]

* But, why would any well-run property be vacant, 3 months of every year on average?...

That's the national average in the long term on a national level.  The market will shift 

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