Help me analyze this deal near military base

11 Replies

@Ryan Brady Most of your estimate percentages look pretty accurate. I can't comment on the accuracy of the expected rents, but the expense estimates seem reasonable. Vacancy might be a little low, I generally look for about 8%, but 5% is not bad. 

That being said, at NEGATIVE $200+ per month in cash flow, not a property you'd want to pursue...

Robert Leonard

Thanks very much @Robert Leonard. 

I've been looking for around 6 months now and nothing even comes close to meeting the 1% rule, let alone cash flowing. Pretty discouraging which is why I was considering this one near base, but yeah it doesn't cash flow by any rational numbers I plug into it. 

@Ryan Brady , what military base are you located close to? From the looks of your report I'm guessing Fort Hood but I'm curious if I'm correct. If that's the case the numbers on duplexes are really difficult to make work there due to the high state tax rates and the inflated costs because of investors moving from more expensive markets such as Austin are willing to sacrifice on the 1% rule. 

Also as stated by @Robert Leonard stated your vacancy rate is kinda low, honestly I would recommend pushing closer to 10% because you have to contend with people PCSing at any time and being able to break leases with orders. Also military communities are really difficult sometimes because if you miss matching a tenant vacating to the summer or winter manning cycles that people PCS on you could be in for eating a few months on the rent before the property gets filled. This generally occurs with more expensive properties in those areas because your target market segment gets smaller due to BAH rates but it is something to think about.   

Last, the numbers don't seem to work, from the report it looks like you are using a VA loan so if you are intent on purchasing a property you are negative cash flow but you are also $0 out of your pocket for the property.

Best of luck.

Andrew

@Ryan Brady , I looked at all your numbers. I would agree with above that your vacancy number is low. Most people like to use 10%, I prefer 8.6%( one month per unit per year). Additionally, I always use 10% for repairs and CAPEX.

Are you going to rent each unit for $1850, or are you planning two units at $925. If the latter is true, than you can't use a VA loan for this unless your plan is to plan to live in it for at least one year. If you are going to live in half and collect $1850 on the other half, than this is of course a win because you will only be paying $200 a month for an apartment that would normally cost $1850. I have a sneaky suspicion that this is not the case though.....

I will have to agree with Andrew about the VA loan and being fully leveraged with the 0 dollars down and owing a monthly 200 on top of that. Keep looking, practice patience, the right deal will come to the one who is actively looking.

Originally posted by @Kevin Hunter :

@Ryan Brady , I looked at all your numbers. I would agree with above that your vacancy number is low. Most people like to use 10%, I prefer 8.6%( one month per unit per year). Additionally, I always use 10% for repairs and CAPEX.

Are you going to rent each unit for $1850, or are you planning two units at $925. If the latter is true, than you can't use a VA loan for this unless your plan is to plan to live in it for at least one year. If you are going to live in half and collect $1850 on the other half, than this is of course a win because you will only be paying $200 a month for an apartment that would normally cost $1850. I have a sneaky suspicion that this is not the case though.....

 Hi Kevin, 

Unfortunately one side rents for $950 and the other probably only $900 (the current owners can't rent the other side so will likely have to drop the rent for that unit). 

I was planning on living in it for a year as it is close to base where I work, but as you pointed out with the vacancy and repairs, I am having to stretch the numbers just to minimize the loss. 

I think that I may pass on this one (unless the price drops) and keep looking. No point in buying one that doesn't cash flow. 

Originally posted by @Kaley Roberts :

I will have to agree with Andrew about the VA loan and being fully leveraged with the 0 dollars down and owing a monthly 200 on top of that. Keep looking, practice patience, the right deal will come to the one who is actively looking.

 Thank you Kaley. I think I will pass on this one for now unless there is a significant price drop, which I doubt there will be. 

Originally posted by @Andrew Zannotti :

@Ryan Brady, what military base are you located close to? From the looks of your report I'm guessing Fort Hood but I'm curious if I'm correct. If that's the case the numbers on duplexes are really difficult to make work there due to the high state tax rates and the inflated costs because of investors moving from more expensive markets such as Austin are willing to sacrifice on the 1% rule. 

Also as stated by @Robert Leonard stated your vacancy rate is kinda low, honestly I would recommend pushing closer to 10% because you have to contend with people PCSing at any time and being able to break leases with orders. Also military communities are really difficult sometimes because if you miss matching a tenant vacating to the summer or winter manning cycles that people PCS on you could be in for eating a few months on the rent before the property gets filled. This generally occurs with more expensive properties in those areas because your target market segment gets smaller due to BAH rates but it is something to think about.   

Last, the numbers don't seem to work, from the report it looks like you are using a VA loan so if you are intent on purchasing a property you are negative cash flow but you are also $0 out of your pocket for the property.

Best of luck.

Andrew

 Thanks for the response Andrew. I actually hadn't considered the frequent vacancies due to all the PCSing. I was actually thinking the opposite, that since it was near base it would always be full but you bring up a good point I hadn't considered. 

I am at Tinker not Fort Hood. 

Also a general question for you or anyone, there is an apartment complex that is essentially in this duplex's backyard whose 3 bedroom units rent for $1300/mo. I'm confused as to why the duplex's rents would only pull $950. I would think you could at least charge $1100/mo and still be cheaper than the apartment, since apparently that's some sort of unwritten rule. Instead I saw yesterday the duplex owners had to drop the rent to $900/mo to get it occupied. What gives?

@Ryan Brady It could be a lot of things, so it's tough to say exactly what it is, but it could just be a poor tenant-acquisition strategy, very strict standards for who they'll rent too, poor property management company, bad advertising of vacancy/availability, etc.

Robert Leonard

We should probably ask if you plan on living in it? If you are being allotted BAH then you have an additional amount of money coming in, that doesn't justify buying anything but your numbers crunching should consider the military is paying you an allowance for housing and they expect you to live off base either renting or owning and show up to work on time. All things considered.