Not to be rude but are you looking to loose money on purpose for tax benefits of some sorts? To me the numbers don't seem to make much sense. I would assume after rehab taxes will go up substantially being property will be improved. Is this a single family or multi-family unit? Your estimating rent to come in on property of $1500 a month but your mortgage payment with insurance and taxes is going to be north of $2000 a month plus other expenses. Not sure how you plan on making money on this property. If planning on appreciation to make you money I would personally shy away from that option.
Just doing a quick glance over numbers to me only thing I keep thinking is run away. Give you an example of deal I am looking at now. Purchase price at max would be $140,000, I need to put in zero money in rehab but will more than likely put in about 10K to attract some more tenants. It is student housing so rents by the room. Currently 3 Rooms rented for $485 a room, total of $1455 a month. With all my expenses figured in plus mortgage I will be spending about $1000 a month, so cash flowing roughly $455 a month right of the bat. Now once I do light rehab, and if can get 5 students in at $485 each my monthly income goes up to $2425, after expenses cash flow should be around $1425 a month. Plus, after rehab value should be about $175k-180k so I can refi and get all money back if I chose to do so.
Figured comparison may help but deal you put up I don't see how you are going to make money on it. If I am missing something please give me some more details. We all will gladly give you help however we can.
Howdy @Jane Johanson
I agree with @Chris Svendsen based on your numbers this is not a good deal. Negative $700 plus in Cash Flow is not my ideal of a good investment. With a Refinance loan amount of $300K you should have monthly rental income near $3,000. If that’s not possible in that market you need to look elsewhere.
I see other issues with your report. 1. What type Acquisition Loan are you using? Conventional or other? Is the property considered rent ready/livable? If not a conventional lender will not fund the loan. Is the P&I payment actually principal and interest or interest only?
2. You did not include a Refinance closing fee.
3. Many of the expenses you use in your Cash Flow analysis are way to low. You need to stay conservative with your Analysis. I never use less than 8.34% (one month rent) for Vacancy when analyzing properties and in my budget forecast. If it ends up lower then I received more income for that year. 1% for CapEx, Repairs, and Management is unrealistic. 10%, 5%, and 10% is more acceptable. Yes, 10% for CapEx is probably high with the Rehab you have planned. However, until I have a property inspected and know the current condition and life expectancy of all major components and appliances I will not lower it. Once I receive the report I can determine what to include in the Rehab and what can be deferred. I then will adjust my reserves requirement.
First off -- Thank you @Chris Svendsen and @John Leavelle. Let me explain the deal. Purchase price is for 2 lots plus one home. The home is in decent condition needs in my estimation about $20k to get it rentable for $1500/month. During the initial loan period, my goal would be to subdivide the second property (have been given a verbal ok on this by the city zoning) and then put a prefab up which will also yield $1500/month. The cost of the prefab is coming in initially at $150k. Need to do more research on more cost effective options. My initial report probably doesnt reflect these numbers. I have rerun and have attached. View report