*This link comes directly from our calculators, based on information input by the member who posted.
I am new to the BIggerpockets, and this is my first analysis. I am very excited and eager to learn the ropes in investing in multi-family homes in Providence, RI. Thank you.
I look forward to hearing from you all.
@Account Closed a few questions/thoughts looking at this
Your loan points don't look right - I doubt you're paying 4.6M points on a 187K loan ;)
Your interest rate may be a little low, especially if it's non owner occupied; have you spoken with a mortgage broker or loan officer? Your analysis seems to indicate non-OO so I think your rate should be at least 5.5% maybe higher.
I like that you're bringing 62K to the table! That will make this (or anything in the same price range) a much safer deal, generally.
If it's been remodeled, why did you figure 3K for repairs - just miscellaneous improvements you'd want to make?
If it's not currently rented, how have you checked whether your projected rents are realistic?
Other than that, without re-doing it in my own analysis, on the surface it looks fine, especially because you're down payment is larger and loan is smaller.
What aren't we seeing in the spreadsheet? What part of Providence is it in? How is that area trending? Who's going to manage it? If it's you and the property is in a C area, do you have experience managing tenants in that kind of area?
As Anthony mentioned above, the (presumably) typo is causing some of the major numbers I'd look at to be off, for example, the Cash on Cash ROI. Removing the loan points and using the closing costs, repair costs and down payment as the "total cash needed", I'm getting a Year 1 Cash on Cash ROI of about 11.5%, which is a bit low. In general, I look for at least 30-33% for my Year 1 Cash on Cash ROI. Also, being a 3-family, you're averaging about $215 per month in cash flow per unit. That is not bad, but again, it's a bit below my personal minimum threshold of $250 (ideally I look for at least $300 in monthly cash flow per unit). It also seems your vacancy may be a bit low for my liking. I usually estimate about one month a year of vacancy (about 8%). This is likely on the more conservative side, but I'd rather be conservative and pleasantly surprised when I have less vacancy than expected.
All of that being said, you included electricity, garbage, and management fees. You could likely get the tenants to pay some of these expenses, and if you could manage the property yourself, you'd increase your cash flow a bit.
I think your property tax estimate may also be a bit low. If this is going to be a non owner-occupied property, your tax rate is ~2x the owner-occupied property tax rate in Providence. You can review the tax rates here: http://www.municipalfinance.ri.gov/documents/data/taxrates/2017-Tax-Rates-12-31-16-FINAL.pdf
Loan Points: $4,687,500.00
If the landlord pays all utilities the tenants will abuse it. Suggest you remove them and recalculate. $3300 is a lot of money so you want to make sure what you plan to charge is accurate for RI.
-I estimated 3k for any unexpected repairs that were not accounted for. Do you think that’s reasonable?
- I went of Rentometer.com, and I saw that the average rent for a 2-bedroom is around $1,000 to $1200 a month. Since I have not physically seen the house, I assumed that with all the units already renovated the rent would be about 1100 a month. I am still waiting for more information in regards to how much the current tenants pay a month for rent. Is that the proper way to go about it?
- I am still searching for a good property management company. I do not have any experience with C Area, but I hope that with a good property manager, I can get the learning experience and knowledge that I need to operate a multi-family home in that properly are. What do you mean by a spreadsheet? By the look of the area trend, it seems there is much trending in the area which that was an excellent question because when I was searching for properties, I did not take in consideration of the area trends.
Thank you so much for the feedback you brought up some great point that I overlooked. Hopefully, my analysis was not the worst you ever been. Thank you.
@Sam Shueh Thank you for the advice. I will remove the utilities and see how my calculations come out.
@Peter Kuck Great point. Thank you for the link.
Thank for so much for your advice. I was not sure if 250$ was low but now that I think about it is. And I will go back and recalculate it using the same method that you use. Thank you.
@Account Closed if you've seen the property and think it's in great shape, 3K is definitely reasonable. You might adjust depending on what comes up in the inspection, of course :)
I wouldn't base your investment decisions on Rentometer. Do your own rental comps, similar units in the same neighborhood, using Craigslist, Zillow, etc. Look where your potential tenants will be looking.
I always use current rents, never "could be" or "market" rents in my analysis. If "rents could be higher", why aren't they? If the seller wants to raise the rents to justify a higher price, s/he can do that. I only buy on current rents.
By spreadsheet I was just referring to the BP analysis linked in your original post.
Those websites are notorious for being wrong on rent calculations . I would bet you’ll be lucky to get 100 bucks a door realistically when all the corrections are made and it’s running . Spending a quarter million dollars to only get 3 grand a month isn’t very exciting . I’d pass . I imagine There’s probably not many strong cash flowing properties in your area