First Analysis of Buy and Hold

6 Replies

I found a piece of property to practice on, now granted this is the listed value on Zillow so I understand it may not be a realistic property to practice on, but the numbers should flow pretty similarly.  I'm looking at buying and holding.  This is one that wouldn't require a lot of rehab work upon entry, I've allowed for $4000 to spruce it up a bit.  The property is a 3 bed, 2 bath in a region that rents for $1400 based on Rentometer.

Have I included everything I need to in order to properly evaluate this property?  I've allowed for 12% of the rental income for property management, 10% for repair values, 1 month of rental income for vacancy, and $182.75 for Cap Ex based on this blog post.

With a negative cash flow of $5,575 and an upfront cash payment of $50,550 I'd be looking at a -11% cash on cash.

Purchase$190,000.00
Interest Rate4%
Years30

Down Payment$38,000.00
Improvements$4,000.00
Closing Costs$8,550.00
Total Upfront Cash$50,550.00
Income Stream 1$1,400.00Monthly
Total Income Monthly$1,400.00Monthly

Property Taxes$2,000.00Annual
Insurance$1,000.00Annual
Lawn Care$100.00Monthly
Mortgage$907.09Monthly
Total Fixed Monthly$1,257.09Monthly
Vacancy$116.67Monthly1 month
Repairs$140.00Monthly10% of rental income
Cap Ex$182.75Monthly https://www.biggerpockets.com/renewsblog/2015/10/13/real-estate-capex-estimate-capital-expenditures/
Property Management$168.00Monthly12% of rental income
Total Variable Monthly$607.42Monthly

Cash Flow-$464.51
Yearly Cash Flow-$5,574.07

First Year Cash on Cash-11.03%

Looks like something not worth investing in.  You should be able to find positive cash flow in the MN market.  It just isn't really easy to find slam dunk deals.

The 4% interest rate is a bit low too.  I would estimate closet to 5% for non owner occupied now.

@Aaron Humerickhouse I would put property management more around 10% but then again I would also manage it if you live in town.

If you want to sit down and go over a few analyzations sometime let me know and we can grab coffee.

@Aaron Humerickhouse

You said you were putting 20% down but the $907 monthly mortgage payment is what you would get if you financed 100%.  Once you fix that in your spreadsheet it will show $726 mortgage payment for the $152,000 you financed.  Might not apply to this one but always check if you have to pay any utilities.  Otherwise the analysis looks correct.  

Thank you for the responses.

@Derek Kirkwood , you're absolutely right.  Thank you for calling that out.

@James W. , I didn't even think about the difference between owner occupied and non-owner occupied mortgage rates.

@Jordan Moorhead , I appreciate the offer.  I'm still working on internalizing some of this, when I'm ready I may reach out.

@James W.  is right, 4% would be more accurate for owner-occupied (aka Homesteading)  but non-homestead would be closer to 5-5.5%

Also, most lenders I've talked to say it's 25% down for Investment Properties ($47,500), so a little more than your $38k

Prop Mgmt is closer to 10% but there may also be a Lease up fee (often one month of rent)

This particular deal would be a good one to pass on, but practicing is great so you build confidence when it's time to submit an offer!

Howdy @Aaron Humerickhouse

Nice to see a Newbie post a full analysis with good conservative estimates. I always use 8.34% Vacancy (one month) for estimates. Your repairs and CapEx looks good. Have your purchased Brandon's Book that that blog post is based on? For CapEx I initially will use 10% on my first pass analysis. I do a walk-thru with my GC and Realtor to get a better Estimate of the condition of the property and develop a Rehab Estimate based on that. If I pursue the property I have it inspected to determine the condition and life expectancy of all major systems and appliances. This wat I confirm our initial Rehab needs, add to it, and determine any deferred repairs that need to be covered by CapEx. I can then develop a more accurate CapEx reserves requirement.

One other thing you need to start doing is work on developing a reasonable ARV/FMV for the property. That way you know if the Asking price is close or too high.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here