Central Florida · Member since 2019 · 88 posts · 10 votes
From what I found on rentometer.com the rent for this place might me little low so from what I have read I should reduce the offer price for the property until it cash flows? I am also unsure of my numbers, I mean the taxes should be correct since I went to the county's website but insurance, capex, repairs, etc are estimates that I have no confidence in how to estimate. If I think I will actually put a bid in then I will contact my insurance company for pricing but for now I have used the highest estimate I could find on the listing sites. For management, I put 10% but will probably end up being 9% if I understood the pricing I've seen locally. Any information in greatly appreciated, thanks.
Rental Property Investor · Staten Island, NY · Member since 2018 · 124 posts · 50 votes
7y
@Deb R.
Based on your numbers this is a terrible deal. You don't have a net return that's positive till 15 years. You're negative cash flow right out of the gate and I think 5% for vacancy, repairs, and maintenance is too low unless your hand and direction was in on the rehab to know just how 'rehabbed' it truly is. Don't do it. No deal far better than a bad one. Happy hunting.
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
7y
It ain't gonna work, @Deb R. You're nowhere near the 1% rule. Even if you were able to get this place for $170k, I don't think you'd cash flow more than $100-125/month.
Regarding your expenses:
Vacancy may be closer to 8%, depending on the market.
Repairs and CapEx, I figure 15% combined.
Insurance looks very high. Talk to a local insurance agent.
What about house utilities? On a duplex the water/sewer is usually paid by the landlord (not always).
Lawn care?
You should always plan for some initial repairs.
You're unlikely to get a rate as low as 4%, unless you're going to owner occupy.
Central Florida · Member since 2019 · 88 posts · 10 votes
7y
@Jaysen Medhurst I know it won't work the way it is but as I said the rents are low according to what I found. To get it to average market rents would increase income by $560 (cash flow to $310.07). If the leases happen to be ending within a month or two and I have reserves to carry the place those two months and am able to get the purchase price down I was thinking maybe it could be a deal. I understand it would be taking a bet that the rents could be raised to that level with either the existing tenants (not likely they would take that increase well) or new ones so I ask what numbers would make it worth the risk?
As for your concerns with the expenses:
Vacancy may be closer to 8%, depending on the market. I do like the more conservative number
Repairs and CapEx, I figure 15% combined. I can bump that up too
Insurance looks very high. Talk to a local insurance agent. I did go with the highest and will get a quote if I can get the numbers more desirable
What about house utilities? On a duplex the water/sewer is usually paid by the landlord (not always). I would of course need to verify that with a viewing and double check what the listing said
Lawn care? I would handle that myself
You should always plan for some initial repairs. It looked very well kept but how much would you suggest before going onsite?
You're unlikely to get a rate as low as 4%, unless you're going to owner occupy. See, another thing I didn't know, any suggestions here?
Thank you so much! I will adjust my numbers.
Dropped purchase price $5000 to $250,000
Added estimate repair cost of $1,000 (I heard that amount in a webinar I believe)
Loan interest rate to 5% (until I get further info)
Increased rent $1,130 x 2 units = $2,260
Vacancy to 8%
Repairs and Capex to 7.5% to total 15%
Monthly cash flow now $29.56 (woohoo I'm in the green)
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
7y
@Deb R., good job reworking the analysis. Even when you dropped the purchase price and factored in the rent hike, this didn't hit the 1% rule and proved not to be a good deal. This is kind of number crunching you have to do on every possible property that comes your way. BTW: nothing wrong with figuring out what number does make this a deal and offering on that. Just be firm about your max price and know it probably won't be accepted.
Regarding some of your questions:
Lawn care: Even if you're going to do this yourself, factor the cost into your underwriting. This is a very low-value task and as your portfolio grows you want to focus on high-value tasks, like finding and purchasing the properties.
Initial repairs: Even if a place looks great, figure $1-5k in initial repairs. There's some weird Murphy's Law of RE that says some thing will break within a month of any closing--usually a refrigerator, which is technically CapEx, but you get my point.
Interest Rate: 5% on a 30-yr loan is probably safe. Call around to some local banks and credit unions to see what they're offering
Rental Property Investor · Staten Island, NY · Member since 2018 · 124 posts · 50 votes
7y
@Deb R.
Based on your numbers this is a terrible deal. You don't have a net return that's positive till 15 years. You're negative cash flow right out of the gate and I think 5% for vacancy, repairs, and maintenance is too low unless your hand and direction was in on the rehab to know just how 'rehabbed' it truly is. Don't do it. No deal far better than a bad one. Happy hunting.
Central Florida · Member since 2019 · 88 posts · 10 votes
7y
@Jaysen Medhurst thank you so much for your thorough feedback. I will definitely make adjustments to my calculations in the future based on your response.
Based on your numbers this is a terrible deal. You don't have a net return that's positive till 15 years. You're negative cash flow right out of the gate and I think 5% for vacancy, repairs, and maintenance is too low unless your hand and direction was in on the rehab to know just how 'rehabbed' it truly is. Don't do it. No deal far better than a bad one. Happy hunting.
Thanks for your concern but I wasn't going to do the deal until I came up with the numbers that worked. I am curious, you stated that there would be no positive net return for 15 years so I was wondering if you had a guideline for that? Do you want positive in 5 years or what is your preference?
Rental Property Investor · Staten Island, NY · Member since 2018 · 124 posts · 50 votes
7y
@Deb R. honestly, if I don't have positive equity and cash flow upon closing, I won't do it. My reasoning is that if I don't have those things, I might as well go find a good turn key company and buy from them. They suck up all the equity in exchange for the cash flow. Why would I waste my time on a property that isn't worth it when I could just go to a reputable turn key Provider for the same thing. Hope this helps.
@Dennis M. geez beat down on the newb ( XD I kid ) not rationalizing just examining all the angles I can to learn how to make a good deal and when there isn't one to be made; and yes it does suck, that's the area I seem to be in, so expanding my search. Thanks for the input.
@Caleb Heimsoth yes, the consensus is this one is unworkable, thanks for your input/confirmation.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
You may need to expand your area , try searching out multifamily in a town an hour away maybe one with lower real estate prices than your current farm area
You may need to expand your area , try searching out multifamily in a town an hour away maybe one with lower real estate prices than your current farm area