To pull the trigger or not

8 Replies

I am looking at a set of two properties located next to each other. One is a 3 bed 2 bath renting for $855. the second is a duplex property with two 2/1 configurations renting for a combined rate of $1280. I found a lender that will loan 75% of the purchase price, and I could make the deal work, but It would eat up most of my capital reserves. I pulled the property tax assessments from Zillow and they are 11,800 and 16,000 respectively. I am no expert in valuations or appraisals so any help here would be great. The rental amounts are from the current leases.

$2,135.00MONTHLY INCOME

$1,694.08MONTHLY EXPENSES

$440.92MONTHLY CASHFLOW

14.08%PRO FORMA CAP

$9,853.40NOI

$22,125.00TOTAL CASH NEEDED

23.91%CASH ON CASH ROI

13.59%PURCHASE CAP RATE

ExpensesIncome50% Rule
Total operating expenses:Mortgage expenses:
Vacancy:$170.80Repairs:$213.50
CapEx:$106.75Electricity:$50.00
Water & Sewer:$162.00Insurance:$120.00
Management:$213.50P&I:$380.20
Property Taxes:$277.33
$72,500PURCHASE PRICE
Purchase Closing Costs$2,000.00
Estimated Repairs$2,000.00
Total Project Cost$76,500.00
After Repair Value$70,000.00
Down Payment$18,125.00
Loan Amount$54,375.00
Loan Points$0.00
Amortized Over30 years
Loan Interest Rate7.500%
Monthly P&I$380.20
Total Cash Needed$22,125.00

Financial Info

2.79%2% RULE $15,625.00TOTAL INITIAL EQUITY

2.83GROSS RENT MULTIPLIER

2.16DEBT COVERAGE RATIO

Analysis Over Time

3% /yearEXPENSE INCREASE

3% /yearINCOME INCREASE

2% /yearPROPERTY VALUE INCREASE

Year 1Year 2Year 5Year 10Year 15Year 20Year 30
Total Annual Income$25,620.00$26,388.60$28,835.54$33,428.29$38,752.55$44,924.83$60,375.21
Total Annual Expenses
Operating Expenses
Mortgage Payment
$20,328.97
$15,766.60
$4,562.37
$20,801.97
$16,239.60
$4,562.37
$22,307.82
$17,745.45
$4,562.37
$25,134.21
$20,571.84
$4,562.37
$28,410.77
$23,848.40
$4,562.37
$32,209.20
$27,646.83
$4,562.37
$41,717.40
$37,155.03
$4,562.37
Total Annual Cashflow$5,291.03$5,586.63$6,527.71$8,294.08$10,341.78$12,715.62$18,657.81
Cash on Cash ROI23.91%25.25%29.50%37.49%46.74%57.47%84.33%
Property Value$71,400.00$72,828.00$77,285.66$85,329.61$94,210.78$104,016.32$126,795.31
Equity$17,526.25$19,494.41$25,837.43$38,134.84$53,197.53$71,986.64$126,795.31
Loan Balance$53,873.75$53,333.59$51,448.23$47,194.77$41,013.25$32,029.67$0.00
Total Profit if Sold *-$1,449.73$6,062.22$30,895.02$80,784.39$143,073.13$220,258.21$432,774.81
Annualized Total Return-6.55%12.87%19.10%16.62%14.34%12.71%10.60%

@Chris P.

Your Purchase price is $72,500, but the ARV goes down to $70,000 after making repairs.

I'm I missing something?

Why is the rate 7.5% Is that the best you can get?

I am basing my evaluation on the worst-case scenario. The full purchase price is 72k, and if I look at comps in the area my property evaluation is somewhere around 64-70 for both. The interest rate is what I was given by a private money lender. The only lender I have found so far that will loan less than 100K with 25K down. I don't want to shoot myself in the foot with my first deal, but I need to get some income generating so I can expand my holding to support my family.

Ok, so after a series of setbacks I have been able to negotiate a better deal with the seller. I offered 70k with 30%down owner finance at 5% interest with a balloon at 3 years. The offer was accepted and is pending a walkthrough and financial records evaluation. While I do feel I am overpaying based on the arv value of the properties, I am comfortable with the price due to the owner finance and positive cash flow that the property generates. According to my analysis, the property should be generating just over $500 a month cash flow from all three doors. 

Ok, so after a series of setbacks I have been able to negotiate a better deal with the seller. I offered 70k with 30%down owner finance at 5% interest with a balloon at 3 years. The offer was accepted and is pending a walkthrough and financial records evaluation. While I do feel I am overpaying based on the arv value of the properties, I am comfortable with the price due to the owner finance and positive cash flow that the property generates. According to my analysis, the property should be generating just over $500 a month cash flow from all three doors. 

I'm curious if you the spreadsheet file you used is one of the ones available from here in the Bigger Pockets files section. If so, which file is it? It seems similar to one I have but mine is a bit bloated, and I have to work around a few things.

@Jeff Kelly ,

This is the bigger pockets calculator spreadsheet. I copied and pasted it. Not sure how others do it on here, but that's what I did. I do have another analysis calculator I use, but I prefer to use the BP one. 

@Chris P.

In response to your question about overpaying based off of the ARV will depend on what you are looking for. Is your goal to achieve cash flowing properties and have a substantial amount of equity tied up in a property? If you continue to hold a lot of your money in a property (equity), your ability to purchase more properties will be slowed down. If you are able to refinance, get your money out AND cash flow, then you will be doing great. Just an idea, best of luck.

@Michael Pears I understand the capital tied up in the properties and that limiting me from purchasing other deals in the immediate future, however, the cash flow that these three units are producing, I would need to put at least as much if not more capital into three or more other properties to get the same amount out. So I guess in the end my answer was all based on the cash flow of the property, rather than the equity. And after sitting down with the numbers again, my initial capital investment is returned in just over 38 months based on the most conservative numbers. 

I will update as the process moves forward.

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