[Calc Review] Help me analyze my practice!

4 Replies

My parents were preparing to sell their home in Bridgewater, Virginia, so I decided I'd run an analysis on it to determine if it would cashflow if, instead of selling, they rented the property out. These are the numbers I got estimated for it. Would anyone mind weighing in and letting me know if my estimates are good?

It's technically two single family homes on the same lot of land, but they cannot be separated into two parcels because they are too close together.

https://www.zillow.com/homes/for_sale/218610897_zp...

This is the listing for the house. The mortgage with taxes and insurance is $1322/month.

Comparing similarly sized 2 bedroom SFHs for rent, I came up with $0.81 to $0.89 per square foot for calculating rental income. I used the $0.81 for my rental calculation, and rounded up to 2000, due to the fact that its located a bit farther away from the primary rental markets, as it used to be a farm property back in the day.

Capital Expense Total Replacement Cost Lifespan (years) Cost per Year Cost per Month
Shingle Roof $5,000 15 $333 $27.75
Metal Roof $13,200 36 $366 $30.50
Water Heater $1,200 3 $120 $10.00
All Appliances $2,000 10 $200 $16.67
Driveway/Parking Lot $100 1 $100 $8.33
HVAC $3,000 10 $150 $12.50
Split HVAC $3,000 4 $750 $62.50
Flooring $2,000 6 $333 $27.75
Plumbing $3,000 15 $200 $16.67
Windows $5,000 10 $500 $41.67
Paint $2,500 5 $500 $41.67
Cabinets/Counters $3,000 10 $300 $25.00
Structure (foundation, framing) $10,000 30 $333 $27.75
Septic System $2,500 24 $104 8.67
Components (garage door, etc.) $1,000 10 $100 $8.33
Landscaping $1,000 10 $100 $8.33
TOTAL $57,500 -- $4,459 $365.39

I'm estimating 1% of the property value for general maintenance, an 8% fee for property management, and an 8% vacancy rate. The totals come to:

Expenses
CAP EX $365.39
Property Management $160.00
General Maintenance $237.50
Mortgage/Insurance/Taxes $1335.00
Vacancy $160
TOTAL $2257.89
Income
2 Bed 1 Bath $900
2 Bed 2 Bath $1,100
Total $2,000

Which would indicate a loss of $257.89 per month. Are there any expenditures that I left out? Am I over- or underestimating any of the costs? Is it likely that I could achieve a higher rent? I've also considered looking at it as an Airbnb property, but my education on that has been minimal at best so far, and I am unsure how successful it would be. To my understanding, there are a large number of wineries within an hour of the location, which may make it a desirable short term rental for vacations or romantic get-aways.

@Alexander Stromberg I think you're in the wrong business. You need to be an accountant rather than an investor.

Here's what you need to determine:

  • Is this a rental area? If it's too rural or something more like a farm, you have fewer prospects and can't get as much rent as a more traditional property in a desirable area.
  • If your cost is $1322/mo., you need at least $1600-$1700 per month to cash flow. That will NOT be profit and will probably not be enough to maintain the maintenance needed over the next 3-5 years. Rental properties don't really make money until there is no mortgage.
  • The reason you would consider this is for the tax write offs that you could get to offset money you make in other areas - your W2 job, flips, etc. 
  • Never take on a property where you lose money every month.

The numbers you detail out are different in every area and change year to year so don't do this next time unless it just trips your trigger.

And, yes, there are expenditures you're leaving out. There are always surprises with every property. 

Way too long a question for most on BiggerPockets to even read. 

I'm not actually sure what you're asking or considering for this property, but don't make this business harder than it needs to be!

@Karen Rittenhouse I was mostly doing this as practice, trying to come up with correct operating costs. I basically went through Brandon turner's 4 square analysis to try to see if the property would cash flow. My biggest question was whether I was properly estimating capital expenditures correctly or not, as it is frequently harped on as a deal killer, at least on the podcasts. I estimated up what I thought were all the correct things to think about when analyzing a deal, and determined that it would NOT cashflow. I was hoping that someone would be able to point out any errors, or let me know if I'm just wildly off the mark on how an analysis goes. I figured since my parents already own it I'd check to see if it was already a deal, and then just change it from a home residence to a rental property, if the numbers worked out.

Does that clarify the post?