Property will cashflow according to my numbers, but downpayment..

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Property will cashflow according to my numbers, but downpayment..

Nick Thomas
Real Estate Agent · Ashburn, VA · Member since 2016 · 107 posts · 31 votes

Hello all, I have been working with a realtor in Eastern NC and he has produced me with a property that I think I could cashflow right away. This is a townhome in a desirable part of town that was built in 2007. The best schools in the county are located here. Carpet throughout the main living areas, vinyl flooring in the kitchen and bathrooms, microwave, stove, refrigerator, dishwasher, fenced in patio, and fireplace. Tenant in place until 4/30/2018 at $925/month. Rather than bore you with all the details, here are the numbers I came up with:

$88,000 PURCHASE PRICE (They are asking 93k and the city values it at 96k)

Purchase Closing Costs$2,000.00
Estimated Repairs$500.00
Total Project Cost$90,500.00
After Repair Value$95,000.00
Down Payment$17,600.00
Loan Amount$70,400.00
Loan Points$0.00
Amortized Over30 years
Loan Interest Rate4.250%
Monthly P&I$346.33
Total Cash Needed$20,100.00
Vacancy:$30.00
HOA:$86.00
Repairs:$50.00
Insurance:$23.00
Property Taxes:$85.00

$1,000.00 MONTHLY INCOME (Property is currently being rented til May for $925 a month, but avg. is 1,300 there.)

$620.33 MONTHLY EXPENSES

$379.67 MONTHLY CASHFLOW

9.17% PRO FORMA CAP

$8,712.00 NOI

$20,100.00 TOTAL CASH NEEDED

22.67% CASH ON CASH ROI

9.90%PURCHASE CAP RATE

According to the numbers I think it'd be a great investment if I could find a way to get the $20,100 I need. Open to all advice. Thanks.

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  • Nick Thomas
    OP
    Real Estate Agent · Ashburn, VA · Member since 2016 · 107 posts · 31 votes
    8y

    Anyone see any issues with this calculation? I am thinking about having a GC inspect the property sometime next week.

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  • Edward B.
    Investor · Midlothian, VA · Member since 2015 · 980 posts · 823 votes
    8y

    @Nick Thomas, I'll bet it's a lot skinnier deal than you think. Your vacancy and repair estimates are low, you aren't budgeting for a PM which will be a HUGE headache out of state, and you aren't budgeting for CapEx. Also, you are banking on being able to raise the rent.

    I would say that this is absolute best case scenario, bordering on unrealistic. It's better to plan for the worst case scenario and hope for the best.

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  • Nick Thomas
    OP
    Real Estate Agent · Ashburn, VA · Member since 2016 · 107 posts · 31 votes
    8y
    Originally posted by @Edward B.:

    @Nick Thomas, I'll bet it's a lot skinnier deal than you think. Your vacancy and repair estimates are low, you aren't budgeting for a PM which will be a HUGE headache out of state, and you aren't budgeting for CapEx. Also, you are banking on being able to raise the rent.

    I would say that this is absolute best case scenario, bordering on unrealistic. It's better to plan for the worst case scenario and hope for the best.

    Thanks Edward. The vacancy estimate I agree is quite low (I just went with the BP calculator estimate). The repairs I felt would be low due to the property being built in 2007, but who knows. The PM is covered by the HOA so that's something I wouldn't have to worry about luckily. I also have no idea what CapEx is. I know others who live in the same townhome complex that pay around 1.1-1.2k a month for rent so I figured the 935 a month is rather low, but I could leave it there if it helped keep vacancy down.

    When I began looking for deals cash flowing properties were not what I was hoping for. Looking more for wholesales/flips, but this opportunity seemed good and was brought to me by my realtor. (Says he owns one there as well that cashflows well)

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  • Jason D.
    Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
    8y
    @Nick Thomas how did you calculate your numbers? Are you able to get 4.25% on a 30 year note for non-owner occupied? Have you gotten an insurance quote for $300 per year? Both of those seem awfully optimistic for an Investments property. As far as expenses, I budget 8.3% for vacancy so that I have a month reserve by the end of the lease, then lower it if the tenant renews for another year. An 11 year old property has an 11 year old water heater and HVAC, so you should plan on replacing the water heater soon and the HVAC within 5 years, so you'll need to reserve for that as well. I reserve about 20% of rent for expenses, and that is with all new mechanicals. You say the HOA is the PM? They will collect your rent and screen your tenants for you? I've never heard of that before, be sure that is the case.
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  • Edward B.
    Investor · Midlothian, VA · Member since 2015 · 980 posts · 823 votes
    8y

    Hmmm, maybe. I've never used the BP calculator. 3% is less than two weeks and it is hard to turn a property that fast. 2007 is over 10 years old, that indicates an average repair rate to me, not a favorable one. I wouldn't budget for less than 10%-15% on anything that wasn't newly built or totally renovated. And even then that would only be for a year, maybe two. 

    How is the property management covered by the HOA? I've never heard of that before. They are finding and screening tenants, managing all repairs, accounting, and tax paperwork?

    CapEx is capital expenditures, big ticket repairs/replace items that you have to capitalize vice expense. Think roof, siding, major systems like HVAC, etc. They are what sink many would be investors that are cruising along with what they think is $100/mo cash flow until they have to drop $5k on an HVAC system thus wiping out years of cash flow. Depending on your build quality you are going to start experiencing CapEx sooner rather than later since the property is already a decade old.

    Not trying to burst your bubble, @Nick Thomas, just trying to keep it real.

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  • Nick Thomas
    OP
    Real Estate Agent · Ashburn, VA · Member since 2016 · 107 posts · 31 votes
    8y
    Originally posted by @Jason D.:
    @Nick Thomas how did you calculate your numbers? Are you able to get 4.25% on a 30 year note for non-owner occupied? Have you gotten an insurance quote for $300 per year? Both of those seem awfully optimistic for an Investments property. As far as expenses, I budget 8.3% for vacancy so that I have a month reserve by the end of the lease, then lower it if the tenant renews for another year. An 11 year old property has an 11 year old water heater and HVAC, so you should plan on replacing the water heater soon and the HVAC within 5 years, so you'll need to reserve for that as well. I reserve about 20% of rent for expenses, and that is with all new mechanicals. You say the HOA is the PM? They will collect your rent and screen your tenants for you? I've never heard of that before, be sure that is the case.

    Hey Jason, I used the BP calculator and input the numbers given by the MLS listing/Realtor.com. The insurance number and the interest rate were from there. Perhaps those are calculated for living in the property though. Thanks for the info about the Water heater and HVAC....I wasn't thinking it would be close to needing replacement. I re checked the PM thing after reading your post. It appears the HOA is run by a property management company. So if I am reading correct they will also manage the property but it seems that's not included with the HOA fee, it'd just be an extra cost.

    Knowing all this I'd definitely say this property won't cashflow.

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  • Nick Thomas
    OP
    Real Estate Agent · Ashburn, VA · Member since 2016 · 107 posts · 31 votes
    8y
    Originally posted by @Edward B.:

    Hmmm, maybe. I've never used the BP calculator. 3% is less than two weeks and it is hard to turn a property that fast. 2007 is over 10 years old, that indicates an average repair rate to me, not a favorable one. I wouldn't budget for less than 10%-15% on anything that wasn't newly built or totally renovated. And even then that would only be for a year, maybe two. 

    How is the property management covered by the HOA? I've never heard of that before. They are finding and screening tenants, managing all repairs, accounting, and tax paperwork?

    CapEx is capital expenditures, big ticket repairs/replace items that you have to capitalize vice expense. Think roof, siding, major systems like HVAC, etc. They are what sink many would be investors that are cruising along with what they think is $100/mo cash flow until they have to drop $5k on an HVAC system thus wiping out years of cash flow. Depending on your build quality you are going to start experiencing CapEx sooner rather than later since the property is already a decade old.

    Not trying to burst your bubble, @Nick Thomas, just trying to keep it real.

    Real is what I want. I didn't think about all the expenses involved. Also, since I was not trying to buy a rental property I should probably just keep looking for what I was originally searching for. The realtor sent the property to me and I knew the area was great so I immediately thought it'd be perfect.

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