[Calc Review] Help me analyze this deal

9 Replies

This is my first small apartment building that I'm working on for buy and hold. I would love to get your feedback and comments in event that I'm missing something.

It's a 7 unit building and each unit is 2/1. There are separate meters for each unit.

Here is my analysis for the current rent: Current Rent

It's a B- area with low crime. Here is my current market rents analysis: Market Rent

If you have any other questions, please let me know.

Jovon

@Jovon Itwaru

Hi there,

that's a pretty significant change in Income, are you sure it's achievable? Also your estimates on vacancy, capex, and repair seems really low (not to mention $0 upfront fixing - there is always something to repair). Especially with MFH, quality of tenants are lower than SFHs so the vacancy/capex/repairs should be higher than a typical SFH imo. Hope that helps.

Originally posted by @Michinori Kaneko :

@Jovon Itwaru

Hi there,

that's a pretty significant change in Income, are you sure it's achievable? Also your estimates on vacancy, capex, and repair seems really low (not to mention $0 upfront fixing - there is always something to repair). Especially with MFH, quality of tenants are lower than SFHs so the vacancy/capex/repairs should be higher than a typical SFH imo. Hope that helps.

Thanks for the feedback.

I'm estimating 3% for vacancy, 5% for capex and 5% for maintenance. What estimates would you recommend?

Good point on the "$0 upfront renovation/rehab --> rent increase". This might require upgrades to kitchens and baths.

i usually use 1 month for SFH for vacancy and 1 month for repairs/CapEx (8.33%) but that would depend on the condition of the house. if the roof of the house for instance was not replaced in the past 10 years, I would probably increase the repairs/capex. If everything was renovated prior to your purchase, maybe you can go slightly lower. but as I mentioned, because quality of tenants are usually lower for MFH than SFH, I would probably increase the % higher for both. Lower quality tenants will have more turnovers and will not treat property nicely. For upfront fixes, i was speaking of normal wears and tears that needs fixing, but sure if you are thinking about renovating the place to increase the rent you should include that in your analysis too. one other thing I would point out is your management fee. It's 8% which is pretty low. is that actual management fee? if your PM charges you tenant placement fees, you should incorporate that too. Hope that helps.

Originally posted by @Michinori Kaneko :

i usually use 1 month for SFH for vacancy and 1 month for repairs/CapEx (8.33%) but that would depend on the condition of the house. if the roof of the house for instance was not replaced in the past 10 years, I would probably increase the repairs/capex. If everything was renovated prior to your purchase, maybe you can go slightly lower. but as I mentioned, because quality of tenants are usually lower for MFH than SFH, I would probably increase the % higher for both. Lower quality tenants will have more turnovers and will not treat property nicely. For upfront fixes, i was speaking of normal wears and tears that needs fixing, but sure if you are thinking about renovating the place to increase the rent you should include that in your analysis too. one other thing I would point out is your management fee. It's 8% which is pretty low. is that actual management fee? if your PM charges you tenant placement fees, you should incorporate that too. Hope that helps.

Do you use 8.33% for capex and another 8.33% for repairs? Or is it 8.33% for both capex/repairs?

I've been using a mgmt. company for a while now that charges me 5% so I just use 8% to cover lease renewals and new tenant placement. 

to me it doesn't make sense to separate out repairs and capex so i just use 8.33% for both combined as default. that's assuming i don't anticipate any major capex to come up in the near term (e.g. roofs/windows have been replaced recently). Oh wow, 5% management fee is outstanding.  Mines charging me 10% on top of $200 placement fee. 

For vacancies i asked around multiple brokers near the area that i'm investing to see how much i should reserve for and eveyrone told me 1 month is sufficient so that's what i've been using. that could vary by area a lot i would assume. 

Disclosure though i'm fairly new investor too, and i'm just going off of what I have been seeing around. I would adjust these assumptions based on actual once i have enough datasets to go off of.

Originally posted by @Michinori Kaneko :

to me it doesn't make sense to separate out repairs and capex so i just use 8.33% for both combined as default. that's assuming i don't anticipate any major capex to come up in the near term (e.g. roofs/windows have been replaced recently). 

I think a good reason to separate out the capex and repairs is to get a good estimate for capex. So, for example, take the current age of the systems (roof, hvac, appliances, driveway), average lifespan and replacement cost. You can calculate how much you need for each item and then combine them into your capex reserves.

To me, I consider repairs like there's a leak in the kitchen sink, doorknob broke -- need new one, etc...  For those items, I'll estimate based on the age of the property, the previous owner's expenses (if available) and my personal experience.

yes but those are both simply a reserve and not an actual cashflow.  you can just manipulate them with %.  

I am new to this also, but the cash-flow seems rather low. Brandon and the other experts always tell you to "make the deal work" Can you do other things to lower your monthly expenses to get more cash-flow? For instance, (and disclosure again, I am new to this). You should shoot for at least $200 per unit, so, in a 7-unit, you should get close to $1,400/Month. If you get this after the rehab part you are ok, but the initial (cost of starting) you are going to be somewhat limited... 

I think $200 per door is relative.  for instance if you buy a $300k property you would want more than $200 cashflow per door, as opposed to if you bought a $40K home, its probably hard to cashflow $200 a door.  more important metric imo is cash-on-cash return.  BT aims for 12%.  you can aim for lower or higher based on your risk tolerance and area you are investing in.  Higher the risk, higher the reward.  his expense estimates are way too low already.  which means the only thing he can do is lower the purchase price or increase the rent somehow.