Insight on my first deal

8 Replies

Hello all,

Hope everyone is having a great new year!

Ive closed on my first deal and would love to get some feedback or even constructive criticism on my own analysis.

Thanks in advance!

Gross Monthly Operating Income 1,300.00
Monthly Operating Expenses
Property Management Fees 104.00
Repairs and Maintenance -
Real Estate Taxes 1.90
Rental Property Insurance 112.50
Homeowners/Property Association Fees 35.00
Replacement Reserve -
Utilities -
Pest Control -
Accounting and Legal -
Monthly Operating Expenses 253.40
Net Operating Income (NOI)
Total Annual Operating Income 15,600.00
Total Annual Operating Expense 3,040.80
Annual Net Operating Income 12,559.20
Capitalization Rate and Valuation
Desired Capitalization Rate
Property Valuation (Offer Price) 148,000.00
Actual Purchase Price 145,000.00
Actual Capitalization Rate 8.66%
Loan Information
Down Payment 29,000.00
Loan Amount 116,000.00
Acquisition Costs and Loan Fees 2,264.00
Length of Mortgage (years) 30
Annual Interest Rate 5.125%
Initial Investment 31,264.00
Monthly Mortgage Payment (PI) 631.60
Annual Interest 5,906.06
Annual Principal 1,673.20
Total Annual Debt Service 7,579.26
Cash Flow and ROI
Total Monthly Cash Flow (before taxes) 415.00
Total Annual Cash Flow (before taxes) 4,979.94
Cash on Cash Return (ROI) 15.93%

@Sam Wydner

Whats the 1.9 for real estate taxes?  Is that 1.9% property tax?

I don't see anything budgeted for maintenance or CapEx. How about vacancy allowance? With your calculated $253 monthly operating expenses, thats only 20% of rent... I think there are some things missing.

Thank you for the reply Derek. Yes the 1.9 is for property taxes.
The other points you touched on were exactly what I was questioning myself as well. What is the best way to calculate possible capEx/maintenance costs or vacancy allowance? With it being my first property I have not experienced any situations to come up with an average $ amount.
I do keep a separate account that can/will fund any possible repairs or vacancies.
I know there is information on this site that can help or answer my questions. I just need to familiarize myself to the website and search areas.

Again, thank you for taking the time to give me feedback.

@Sam Wydner

Ok, what is the assessed value that you pay the 1.9% on?  I'm trying to figure out what you actually pay for taxes because in your numbers above its just literally adding $1.90 monthly expense for taxes.  If you had not done this already you can go to the county tax website to see how much taxes will be.  Sometimes sites like zillow or redfin have the tax history too.

Obviously the maintenance and capex depends on a lot, like the market, condition of property, etc.  If you have any big expenses coming up that you know about, for example the inspector determined the roof will need to be replaced soon then you can start saving specifically for those.  To use very generic numbers for analysis you could do 5% for each.  Same with vacancy, it depends, but a lot of people use 8.3% because thats 1 month out of every year.  With 10% for maintenance/capex, 8.3% vacancy, and $2755/yr taxes (assuming the assessed value is same as you paid 145k) it looks like this will be negative cash flow.

Originally posted by @Derek Kirkwood :

@Sam Wydner

Ok, what is the assessed value that you pay the 1.9% on?  I'm trying to figure out what you actually pay for taxes because in your numbers above its just literally adding $1.90 monthly expense for taxes.  If you had not done this already you can go to the county tax website to see how much taxes will be.  Sometimes sites like zillow or redfin have the tax history too.

Obviously the maintenance and capex depends on a lot, like the market, condition of property, etc.  If you have any big expenses coming up that you know about, for example the inspector determined the roof will need to be replaced soon then you can start saving specifically for those.  To use very generic numbers for analysis you could do 5% for each.  Same with vacancy, it depends, but a lot of people use 8.3% because thats 1 month out of every year.  With 10% for maintenance/capex, 8.3% vacancy, and $2755/yr taxes (assuming the assessed value is same as you paid 145k) it looks like this will be negative cash flow.

 I have always used 5% for vacancy and capex. I like the idea of using 8.3%. Definitely will start analyzing my deals this way. 

Given the numbers and adding the suggested 8.3% for capex & vacancy looks like the only way it will cash flow is if you add the PM fee back in and manage it yourself then you would be a bit over $100 monthly. I guess you would use the standard capex and vacancy of 5% to squeeze in more cash flow.

Obtain your true vacancy rates by

1. US census bureau
2. Property management or RE agent

I use a minimum of 5 percent each for capex and maintenance. I boost capex to 10 percent if there is deferred maintenance or the property is older than 1970.

I boost maintenance to 10 percent if property located in a “C” grade area or below.

Best of luck

Thank you all so much for the responses!
I am going to do some additional number crunching with your suggestions.

Fortunately, if I’m negative or positive, I can cover additional expenses. This was a move I needed to make to get myself in the process of real estate investing and learn from my mistakes. With that being said,
thank you all for your awesome input!

Howdy @Sam Wydner

Agree we those above. I use 8.34% for Vacancy, 5% Maintenance, and 10% for CapEx in my analysis. The actual numbers can / will be different once you own the property. You may be fortunate and not have any vacancies for 2 or 3 years. No vacancies means less turnover costs (maintenance expenses). I always have the property inspected to determine the current condition and life expectancy of all major components and appliances . This allows me to develop a more accurate CapEx reserves requirement. I would not recommend removing PM from your analysis. Even if you plan to self manage. Whether you pay yourself or not now you may eventually need a PM service if you plan to expand your REI business. How would you be able to account for it if you did not include it in the first place?

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