@Thomas Fraiz numbers look good. You have the asset loaded with 29% in expenses and it still cash flows - so no concern there.
The better question is, are your assumptions correct?
- Capex is a function of the property replacement value, it's age and current condition. In other words 8% could be high for a new building in great shape or low for an older building in need of a new everything within the next 5 years.
- Repairs go along with capex. A good property will often run on zero for a long time.. a bad one can be much higher than 8%.
- Rents are always a big wildcard. You want to run your numbers based on rent you feel you can get for sure. If you can bring in a $100 extra, that's great!
@Thomas Fraiz, this could be a winner. A few things from your analysis:
Management will probably be 10-12%.
You don't have anything down for insurance.
What about flood insurance. Have you confirmed this isn't in flood zone?
Is water/sewer metered separately? If not, you'll probably have to cover it as the landlord.
You have $0 for initial repairs. There is always something and this is being sold "as-is." You should definitely expect $5-10k in initial repairs. Make sure you do a thorough inspection to minimize issues popping up.
What makes you think you'll be able to get this $55k below asking price? Have you researched this foreclosure? When the bank files the legal paperwork for a foreclosure, they have to list how much is left on the loan. Use that as your baseline. The bank won't want to accept less than that and they're spending money on maintaining the property, agent's commission, etc. That's not to say they won't accept less, but it will be a much longer and more difficult process.
Thanks so much for your feedback, guys. I just started my journey into real estate last week, so your comments are much appreciated. I attended Brandon's webinar for The S.M.A.R.T. Way to Invest in Rental properties last night, so some of the assumptions that I made were taken from the "quick and dirty" examples that he worked through with us. It sounds like some of the assumptions I made are reasonable, while others would clearly need to be refined before seriously pursuing this as an opportunity.
@Marcus Auerbach your insight for Capex and repair expenses were helpful as it really helps me to have the determining factors clearly defined + understanding how those expenses are so closely tied to property condition.
@Jaysen Medhurst I appreciate the points you made about some of factors that weren't included in the analysis. For many of those I was unable to find the information/not sure where to look. When you're unable to find certain pieces of information for an initial analysis, do you tend to omit those or just make your best guess? As far as researching the foreclosure, this was an area where I wasn't sure what resource to be looking at. I used $55k below the asking price because, from what I could find, the property was listed at what the estimated property value is, so it seemed odd to me that the presumed full amount of the loan was still left to be paid. Do you have a preferred go-to resource for foreclosure research?
Never omit an expense just because you can't find an exact number. Make an educated guess and then start hunting down the information.
Foreclosure is a legal process, so the documentation is public record. It might take some searching to find the right place in TX. I don't know that state/market. Here's an example from one in CT. See at the bottom of page 1, point #5 it says "unpaid balance is $24k"?
Personally I would want a better return on that much money but it looks like a nice place with conservative figures on paper . You’d likely do okay on this one