[Calc Review] Help me analyze this! Looking to buy n hold

2 Replies

Howdy @Tracey F.

I see no one has commented on your post yet.  Here’s my view from a conservative perspective.

This deal would not meet any of my initial investing criteria. 1. Meeting the 1% rule (Monthly rent must be a minimum of 1% of Purchase price) and 2. The property must Cash Flow a minimum of $100 per unit/per month using the 50% rule. And finally 3. It must have a CCR (Cash-on-Cash ROI) of 12% or better.

Your Purchase price of $99.9K is to high for the $850 Rent.   That’s .85%. The rent needs to be closer to $1000 or purchase price at $85,000.

Since the Purchase price is higher it makes your P&I payment higher.  The rent being $850 means the P&I needs to be $325 or less.  You may ask why am I using 50% for expenses?   Because over time you will find they will average closer to 50% of the Rental Income than your 30%.  

Your Expense estimates are not realistic. Vacancy should be projected to at least cover one month of rent. That is 8.34% or $70.89. Even though the property may have recently been updated you still need to save for future repairs/replacement. You can have significant repairs to do when you have turn-over. $1,000 - $2,000 in painting, cleaning, patching, or replacing is not unrealistic. You would be better off saving 5% - 8% for Maintenance and 8% - 10% for CapEx. Remember, just because you save this money doesn't mean you always will have to spend it each year. You also did not include insurance. Just between the increased Vacancy amount and insurance I believe it will wipe out your Cash Flow projection.

You will find it in your best interest to stay conservative with your numbers.  Do not fudge them just to make a deal look good.

Offer at a price that makes sense for you to cash flow without fudging.  If the current rent is below market rates then that helps you.

Hope this helps.

@John Leavelle Thanks for your advice especially about vacancy & insurance reserves. I played around with the numbers many times but just couldnt make it work and decided to pass on it. Your feedback is very helpful.