[Calc Review] Help me analyze this deal

9 Replies

Hey Robert,

Welcome to BP!

It's hard to give you great feedback on this. The numbers look decent, but it also depends on the market. Can you get $1700 / month ALL DAY & EVERYDAY? Or is that a stretch # for you? What other market info can you share? Or do you not know much about the market? If so, do your research. Call property managers in the market you're looking to buy in, drive around the neighborhood (and a 2nd time at night) or look at google street view, check out Hotpads.com or Rentometer to see what current rents are in the area, check out city-data.com to get economic info for your area, etc.

To answer your question based off the numbers, looks great. If you can get 1% the purchase price of the home, per month, in rent, you should be good, assuming there's not a ton of CapEx you have to worry about.

Hope that helps! I'm sure others will chime in too!

@Robert BEnnett , I agree with Nate, you need to be as sure as possible about your pro forma numbers. As well as the rent question, I'd check those mortgage figures. Is your lender giving out 5% investment loans, fixed for 30 years? [Afaik, it's more usual to get terms like that as an owner-occupier rather than as an investor].

Also, 5% vacancy, 5% cap ex and 5% maintenance could all prove to be not enough of an allowance!

My pet peeve: Paying full market value = No deal! Welcome to BP. Thanks for asking. All the best...

@Nate Burgher ...I did go through Rentometer and that is where I found the median rent was $1700. It is an out of state fix and flip that was presented to me (so maybe 5% interest loan is unreasonable) so I am trying to find all of the right questions to ask to make an informed decision. 

@Brent Coombs ...What would you consider a reasonable interest rate on an investor type of loan that would make my projections more accurate? The rental number I got from Rentometer. How do you calculate vacancy, cap ex, and maintenance? This home is a fix and flip that was presented to me.

Originally posted by @Robert BEnnett :

@Brent Coombs...What would you consider a reasonable interest rate on an investor type of loan that would make my projections more accurate? The rental number I got from Rentometer. How do you calculate vacancy, cap ex, and maintenance? This home is a fix and flip that was presented to me.

If you're only interested in "fix and flip", then the interest rate and terms are not of such great importance. Instead, the purchase price vs (sold comps) ARV becomes the main issue! ie. Your research would need to change focus.

Question: Do you just consider yourself an armchair analyzer, with no intention of taking action?

Yes, you've come to the right site to ask these sort of questions, but, how much will you do, to help yourself?

eg. I reckon you should be out there asking lenders about their interest rates/terms for investment loans!

(Sorry, I'm not in a position to suggest any particular lender - but others might).

As for pro forma vacancy, cap ex and maintenance costs, each property will have its own likely numbers, but folk around BP often suggest allowing for 1 months vacancy per year (ie. around 8%). The idea is that every time there is a vacancy, it may cost you around two months rent; but conversely, you may only average vacancy every second year!

Percentage allowance for maintenance and cap ex will vary according to the initial purchase price. ie. The higher the purchase price, the less they will cost on average as a percentage (simply because it costs the same to replace the roof of a $75k property as it does for the same type of property that cost $200k to buy). You get that, right? What I was alluding to is that many properties should allow more than 10%, if they want that to cover both maintenance and cap ex!

Can you tell us whether you believe this would be a real "fix and flip" proposition, and why? Cheers...

@Brent 

@Brent Coombs ...I am not fixing and flipping the home. The house has already been rehabbed. The person who rehabbed the home gave me their asking price so I calculated my numbers based on the property as a rental and potential rental income to try to see what would make sense as an investor if I were to purchase or wholesale this property to an investor looking for an income property. If that makes sense.

Originally posted by @Robert BEnnett :

@Brent 

@Brent Coombs...I am not fixing and flipping the home. The house has already been rehabbed. The person who rehabbed the home gave me their asking price so I calculated my numbers based on the property as a rental and potential rental income to try to see what would make sense as an investor if I were to purchase or wholesale this property to an investor looking for an income property. If that makes sense.

Just so you know: Flippers (like this Seller) will not knowingly take less than what the market will bear! 

ie. Forget about the idea of wholesaling it!

So the real question is: Is this an area where owner-occupiers pay more for rehabbed homes than investors?

If the answer is no, then the likelihood is: it's not in a highly sought after / highly appreciating area.

If the answer is yes, then you should only be buying it (imho) - to live there! But to reiterate: Only buy bargains!...

@Robert BEnnett Have you checked the tax rate on this property? I was knee-deep in analyzing it and came across the 2017 Tax Bill for $6,446.18 ($6,248 before all the late fees) !! Looks like the property had a Homestead exemption tied to if for 2014-2016 but then it was sold to an investor (flipper?) known as "FORTUNATE SOLUTIONS GR" and it lost the Homestead exemption. Crazy thing is the appraisal value per the taxing authority is  $90,940 which, apart from their 'fuzzy math' in calculating the property tax, puts the tax as a percentage of value at a whopping 6.87%!!

I'd walk - RUN away personally.