Help me with this deal

9 Replies

Can anyone help me with this? Feel like I am underestimating the costs. There won't be property management cost as this will be my first property. Very much appreciate your help!

xxDownsideBase CaseUpside
Property Pricex415000415000415000
TypexMFMFMF
Number of unitsx444
Price Per Unitx$103,750.00$103,750.00$103,750.00
1% Rulex$4,150.00$4,150.00$4,150.00
1.5% Rulex$6,225.00$6,225.00$6,225.00
Assumptionx
xDown Payment %5%10%20%
xYear303030
xRate6%5%5%
xPMI1.00%1.00%0.00%
xxxxx
Income Per MonthRental Income$5,300.00$5,300.00$5,300.00
xLaundry$150.00$150.00$150.00
xStorage$0.00$0.00$0.00
xMisc$0.00$0.00$0.00
xTotal$5,450.00$5,450.00$5,450.00
xxxxx
Expenses Per MonthTax$604.25$604.25$604.25
xInsurance$125.00$125.00$125.00
xUtilities
x Electric$41.67$41.67$41.67
x Water$0.00$0.00$0.00
x Sewer$0.00$0.00$0.00
x Garbage$0.00$0.00$0.00
x Gas$0.00$0.00$0.00
xHOA$0.00$0.00$0.00
xLawn/Snow$31.25$31.25$31.25
xVacancy$265.00$265.00$265.00
xRepairs$400.00$400.00$400.00
xCapEx$400.00$400.00$400.00
xProperty Management
xMortgage$2,588.00$2,479.00$2,112.00
xPMI$25.88$24.79$0.00
xTotal$4,481.05$4,370.96$3,979.17
xxxxx
Cash Flow Per MonthTotal$968.95$1,079.04$1,470.83
Per Unit$242.24$269.76$367.71
xxxxx
Initial InvestmentsDown Payment$20,750.00$41,500.00$83,000.00
xClosing Cost$10,000.00$10,000.00$10,000.00
xRehab Budget$7,500.00$7,500.00$7,500.00
xTotal$38,250.00$59,000.00$100,500.00

@Hoang Bui ,  you don't plan to owner occupy, right?

If not, you'll need at least 20% down (maybe 25%), so you're 1st two scenarios aren't applicable.

  • Why no expenses for sewer or water? Are they sub-metered?
  • $31/month for lawn/snow is way too low. I'd figure at least $100 to be safe.
  • Vacancy might be a little low, depending on your market.
  • As @Jeremy Wickens pointed out, always include management in your underwriting.
  • Closing costs look very high.

@Hoang Bui you should ALWAYS factor in a property management expense, even if you're self managing, so you can keep your returns realistic. Self managing saves very little money at the expense of quite a bit of your time and efforts, IMO this tradeoff shouldn't justify boosting your pro-forma returns on paper.

@Elliott Elkhoury What would be the rule of thumb for factoring in a property mgmt expense? Would 1% of the rent work? 

@Jaysen Medhurst   $31 for lawn/snow would be for year round. I don't think the property has a lot of grass, and most of the expenses would be for snow removal. And why do you think that closing cost is high - in my understanding is about 3-5% of the purchasing price. So think my cost is actually on the low end. 

I guess when factoring in property management cost, it doesn't seem like the cash flow is that much. What's a reasonable cash flow these days? What's the median? What's good cash on cash returns when you think that would be a good deal? 

With the information you have provided your return on the 83000 should be in the 15% range including loan pay down over a five year period. That's not a bad deal by any means. Just gotta make sure you got those numbers nailed down for maintenence, vacancy, management, turn around etc.

@Hoang Bui , average closing cost on a residential property in the U.S. is $4-4.5K. This can vary quite a bit from area to area. The cost of the property should have no bearing on the closing costs. The only real difference is that a larger property (e.g. MFR) will cost more for the inspection.

I understand that lawn/snow is year round. I'd call some lawn companies to get prices, asking if they also do plowing in the winter. I suspect you'll be closer to $100/month.

As @Brandon Cooper pointed out, property management is usually 10% of GSR.

I shoot for deals that cash flow $150-200/unit/month and have a mid-teens CoC ROI or better.

@Hoang Bui 8-10% of gross rents depending on what the standard for your market of operation is. It's 10% in the market I invest in.

I would get away from being too statistical in your cash flow requirements- the investors who make the most money aren't the ones that set their criteria based on the average or median investor, per se. I recommend you don't buy a long term hold property unless it's a 10 cap after REALISTIC operating reserves. If you have a really nice property, going below a 10 cap could be acceptable, but I wouldn't compromise too much. 

Also, side note on lawncare. Lawn care on a typical duplex in the urban market I operate in (not a lot of sqft with grass to mow) costs 20$-30$ per mow, and the grass is mowed 2-3 times per month during seasons when it's growing (which is about half the year). Your estimate of $31 sounds a bit low depending on the property.