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!
|Number of units||x||4||4||4|
|Price Per Unit||x||$103,750.00||$103,750.00||$103,750.00|
|x||Down Payment %||5%||10%||20%|
|Income Per Month||Rental Income||$5,300.00||$5,300.00||$5,300.00|
|Expenses Per Month||Tax||$604.25||$604.25||$604.25|
|Cash Flow Per Month||Total||$968.95||$1,079.04||$1,470.83|
|Initial Investments||Down Payment||$20,750.00||$41,500.00||$83,000.00|
Property Management should be accounted for even if you are doing it yourself. Would you want to have to sell a property because you couldn't cashflow it and were suddenly incapable of doing it yourself?
@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?
i would assume 10% property management fees
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.