GIGO......someone just didn’t put all the numbers in right.
At a glance.....the renovations show as regular expenses, no rental income, etc.
Ok I wouldn’t doubt that the info I put in was wrong…I don’t have a clue what I’m doing. Here is the information...based on this is it a good deal? The house is a foreclosure and is on the market for 100,000, taxes are 2,240/year…estimating that insurance will be around 1000/ year. I am estimating about 15,000-20,000 in repairs. I should be able to rent it for 1,000/month. I will appreciate any advice!
Oh and I will be financing this house with a 5.75 interest rate/20 yr term and 15% down. .
Howdy @Rhonda Chapman
Welcome to BP. Seems like you have a lot of educating (it's all free here on BP) to get caught up on. The first thing I would recommend is watch all the podcasts on the BRRRR strategy. Search the website for anything on this strategy. Learn all the key elements and how you get them. And of course keep posting your analysis.
As far as this report goes it definitely needs a lot of work and explanations on how you came up with the numbers, what your plan is, how old is the building, what type property (SFR, 2-unit, 3-unit, etc). I'll break it down section by section.
Purchase Price Information: I understand how you derived at $95K (not the price I would pay ... I'll explain below) and Closing Cost is fine. You state estimating $15K - $20K for Rehab. Always use the higher amount. Rehabs rarely going exactly as planned. What type Rehab are you estimating? Lip stick only, some major repairs, upgrades, etc? How did do get $135K for thew ARV? Comps? Your Rehab is tied to this number. Do you really think it will only take 1 month top complete the Rehab? I always add at least one extra month in my budget. As I said they don't always go as planned. Time to Refinance 2 months? I will address this below.
Acquisition: What type loan is this? Conventional lender (Fannie Mae)? Small bank or Credit Union (Portfolio lender)? Why 20 years and not 30 years for amortization? Are you contributing any of your own cash to this deal?
Refinance: This is where the biggest problems are. When you refinance a property the loan amount is base on the lenders Loan-to-Value (LTV) ratio base on a new appraisal. These ratio's are usually 70% - 80% of the appraised value. When you Rehab a property you are trying to get it to a condition that it will appraise at the current Fair Market Value (FMV) for similar properties. This is referred to as the After Repaired Value (ARV). ARV is suppose to be as close to the FMV (or the banks appraised value) as possible. You say the ARV is $135K. the problems is the lender is not going to give you 100% of the value in the form of a loan. You must leave part of that value in the property as equity. So at more you will get $108K (80% LTV) for the Refinance loan. The next thing is conventional lenders will not provide a refinance loan only 2 months after your original acquisition loan. They typically require 6 - 12 months seasoning of the original loan. Unless you have already arranged something with a lender.
Income & Expenses (Cash Flow analysis): The problem with the repair numbers have already been discussed. Here are the basic Expense items that should be included in every property analysis you do. Vacancy; Rarely do properties stay fully occupied for ever. This is a important reserve you should always account for. You may see Vacancy rates anywhere from 2% to 5% provided by sellers and other investors here on BP. That will not cover a full month vacancy. I never go below 8.34% (one month rent). If I have a unit go vacant for a month then I am covered. If I have no vacancies then I made more income that year. Repairs; This is a reserve to cover monthly minor repairs and maintenance costs. Depending on the age and condition of the property and the quality of tenants. It is common to use a percentage (5%-10%) of the projected rental income. CapEx; This also is a reserve to cover larger repair replacement issues. I like using 10% for my initial analysis until I have the property inspected. Once I know what needs to be included in my Rehab the remaining will be considered deferred maintenance. I adjust my CapEx accordingly to a number versus a percentage. Property Management; This cost is recommended to be included even if you plan to self-manage the property. I am a firm believer that you time is worth something. If you plan to expand your portfolio you may decide you need a PM service. If you did not include it in your original analysis it will be difficult to add it later without greatly affecting your cash flow. 10% is average. Property Tax and Insurance; You already included these. Other Expenses; There are numerous other expenses that occur for each property. These include (but not limited to) Utilities, HOA fees, Lawn care/Snow removal, accounting, legal, etc. If you do not have the complete list of expenses for a particular property I would suggest using the 50% rule for your initial analysis until you ca verify actual costs. That is 50% of the income as expenses.
Hope this helps.