Allow me to elaborate. This property is undervalued at $400,000. Investment properties like this are going for 25-35 thousand more in my neighborhood.
It is a student rental in a neighborhood that has a high demand for off campus housing. The market rate for properties like this are $850/student. It's reasonable to assume that the unit will be signed by at least 4 students within 1 month.
It requires less than $1000 in repairs according to the inspection, but has an unfinished basement which could be finished. Doing so is a common way insvestors build equity in my neighborhood.
The cash on cash return is only 4.48%. I want much stronger cash flow in our market.
The cap rate is low. If cap rates go up, the value will go down.
The DSCR is only 1.23 which does not meet commercial lending minimum guidelines.
If not using conventional financing (assumed conventional) you won't get a 30yr fixed rate. Even with conventional, I think you will pay a little more now.
The 5% management figure is about half of what you will pay
Cap Ex and repairs totaling 5% is way too low. I'd estimate 10% of so but it really is property specific. Either way, the figure provided is low especially if renting to students.
I'm not too familiar with the calcs on here, but you will have vacancy and I do not see that factored in.
If the utilities are not actual, you will want to verify those but they seem a little low to me based on my experience
Based on what I see, I would not do the deal-even with your added info. I guess it is up to you with what your goals are though.
James, thank you for taking the time to analyze this.
You've opened my eyes to the low ceiling this deal has, and the potential downsides I overlooked.
This was exactly the advice I needed.
Again, thank you very much.
Deals are tight in our market and you need to look at the numbers closely on all deals. Don’t take stated info without verifying.
Personally, I’m not buying deals with the reliance on appreciation so it needs a decent return without it.
@Joshua Kerner only buy off actuals p and Ls for the last twelve months.