Deal Analysis Advice

9 Replies

I am brand new to Real Estate in the Omaha, NE area, looking to buy my first buy-and-hold in 2018. I hear people say all the time that a good benchmark for these deals should be $200+ cashflow per month. What I am finding, however, is that I am having a really hard time finding any properties that meet that benchmark when using the BP calculator.

EXAMPLE:

-4BR/2BA in great location (near 2 universities and entertainment districts)

-Listed for $85,000

-No major repairs needed

-$1,700 Annual Property Tax

-20% down

-30-year Term

-$90/mo insurance

-$925/mo rent

-10% holdback for vacancy

-7% holdback for CapEx

-7% holdback for Repairs

-5% holdback for Management (though I would manage myself)

Inputting all of these factors I am getting almost no cash flow. To hit $200 cash flow I have to bring my purchase price all the way down to ~$48,000, and the list price is already below a lot of comps.

Can anyone tell me what I am doing wrong in these analyses? I seem to get these type of results for every deal I look at.

Brian,

You can share the pdf of the calculator and others would be able to look at it an see if there were any errors in your calculations. 

The deal above is about $100/mo positive cash flow. It has been my experience that duplexes are a better place to start than a SFR. They usually have better cash flow and lower risk. The lower risk comes because you will almost always have at least one tenant in the property to pay the monthly expenses.

@Brian Washburn

85k PP

20% down = $17,000

Debt service of ±$325 @ 4% over 30 year

±$142 per month PT

Gross rent = $925

$90 per month insurance

$93 per month vacancy

$47 capex (typically find 5% average is enough)

$47 repairs (same)

$93 for management (I would account for 10% regardless if you manage it yourself)

Income before debt = $555 (need to account for utilities)

Net after debt service = $220

$220 x 12 = $2,640 or 15.5% cash on cash return

I'm assuming if it's a single family, you'll have the tenants pay for all the utilities and trash.  May want to fix in lawn care for 30-50$ per month depending how much mowing needs to be done.

@Brian Washburn , wondering why you think you can only get 925 in rent?  A 4 bed, 2 bath house should be collecting more than that.  I bought a 3,2 on 50th and Leavenworth and projecting to get at least 1200.  I’m sure you analyzed the area for expectations of rent, but I just thought that was low. Also, I feel like the getting above  or around the 1% rule is and ther check you can do to make sure the property is worth pursuing. I say give it a go and good luck.  Oh and attend @Collin Schwartz ’s meet up this month too.

@Matt Morgan I thought it should be higher rent too, but the listing description says it is currently rented for $925, and I found 2 other 4BRs in that part of town that were rented at $1000 and were in a bit better shape. I would think that house in that location should bring in about $1100, no?

I went to @Collin Schwartz 's meetup 2 months ago and it was great! I was out of town last month but I need to get back for the next one!

I would say this place is under market value for rent.  Just looking at Zillow alone (which can be wrong) says 1200 for rent for the zip code.   

@Brian Washburn I do think that the property is undervalued as far as market rent. I have a 4/1 (duplex) very close to yours, I charge $1k a month and I consider myself under market. I would however exercise extreme due digence in your screening of tenants based on the area. Make sure when marketing you have clean and crisp photos with lots of relevant information (look at other listings in the area to get an idea). Also to save yourself some time, make sure that you have your tenant criteria outlined (no prior evictions, no violent felonies, etc).

Thank Matt Morgan for the shoutout about the meetup! Brian I hope to see you at this upcoming meetup on Wednesday the 21st!

Here's another question. 

One reason I am not hitting $200 cash flow on a lot of these is that I am calculating my loan term at 20 years instead of 30. I do that to pay off the loan sooner and have more equity faster, but is that a good idea? Do most buy and holders stick with 30yr? Anyone else try to pay these off faster? The more I think about it, seems like doing 30yr and having higher cash flow each month to turn around and invest in more properties sounds like a better option.

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