Walk me through the steps of evaluating this deal please

14 Replies

This is a triplex in the local area being sold for $279,000 generating $2310 a month the realtor gave me a list of expenses.

Mortgage =$1114

Hydro. =$176

Insurance =$230

Internet. =$115

Taxes. =$230

@Cole Black are you paying for the internet for all three units? Is this not an expense that you can put back on the tenants? 

Also, what are you trying to do with the property? BRRRR? Flip? house-hack? Are you looking for cashflow or equity?

I would suggest utilizing one of the calculators on this site as they can be really useful in making sure you include all of the additional costs that come with being a landlord that way you can actually make sure the property will cashflow (if that is your goal) and it'll help you evaluate the deal overall. If you're unsure how to use it, @Brandon Turner does some great walk through videos on the BiggerPockets YouTube channel on how to use the calculators. 

Hope this helps,

Kyle

@Cole Black I agree with Kyle.  You definitely need to use Bigger Pockets calculators. I highly recommend for you to become a pro member if you plan on analyzing deals often.  Many people don't take into account in adding the 4 MAJOR categories including the outside expenses when analyzing a deal. 

1.Property mgmt: usually 10 percent of the monthly rent (If needed). 

2. Vacancy: put 10 percent of monthly rent away for when a tenant leaves and you need to fix up the unit.

3.  Repairs: 5 percent off monthly rent.

4. Capital Expenses: It would be wise to save at least  5 percent off monthly rent for big ticket items, (Roof, heating, AC, etc)

So above all the expenses you described, you need to add in property taxes in as well. 

Just some advice. Best of luck to you!

@Cole Black just using the 1% rule of thumb its a pass

@Scott S.

Thank you is these percentages of the rent? If so before or after mortgage is deducted?

@Kyle Horne

My goal is to get some cash flow from my u it’s I don’t own any yet but would like to make my first deal in a few months when I have the knowledge. Thanks for the help I will take a look into the calculators

@Kyle Horne

I believe I could put the internet back I. The tenants as well as maybe electrical not sure how it’s set up yet I have yet to look at the property

@Cole Black

It’s worth considering if:

The condition is good- mechanicals not too old, roof, electrical, plumbing.

The area is improving and you can reasonably expect to push rents over time.

You could house hack one of the units.

Personally I would pass but this is similar to my first deals when I had more limited capital. Now I look for stuff like this but more distressed and much lower purchase price.

When you use the bigger pockets rental calculator, just punch in all the required numbers (expenses). At the end you will get the estimated cash flow. Just by looking at your numbers, I am not very positive about this specific deal. BUT keep analyzing deals and use the calculators. Eventually you will just have to look at price, rent and expenses and you’ll know if it’s something you might be interested in. I like to cash flow 150-200 per unit. That’s my personal minimum to be worth it. 

who is paying lawn care and trash pickup? i am buying several triplexes and these expenses can be significant.

@Cole Black

I have a proforma I can run the numbers through and then talk with you about how I arrived at the end number. Is that more of the response you are looking for? The general consensus in the group seems to be a pass but opportunity can be found/created depending on your willingness/risk. Let me know and I can PM you a time to pick up our conversation. 

use the 1% rule to weed out the losers ... this one is a loser . As a comparison I have a triplex I paid 39k for that gets 1,825$ for monthly rent.

@Dennis M.

Did you do a BRRRR or did you just buy and rent it out? That must be a cash flow monster for you!

Originally posted by @Andrew Hancovsky :

@Kyle Horne where can I find the calculators you’re referencing?

In the menu at the top of the website, hover over tools and the calculators will be grouped on the left. It's very easy to use!

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