[Calc Review] Help me analyze this deal

7 Replies

Hi Cynthia,

I am still in the reading/listening to podcast stage of my Real estate career but i am going to pitch in here with my opinion and see how close it is to other experienced investors that comment later.

Your management fee expenses are super low at 3%. i have seen them being quoted from 8%-12% on all other deals that i learn from in this forum and in general 8-10% seems to be the standard. At 8% min thats another 40$+ taken from your cash flow.

750$ per month for a 3 bedroom 2 bath seems low to me. If there is potential to increase rent to atleast 900-1000$ per month then this deal might make sense for me but right now i dont think this is worth it.

Bharath

I agree with Bharath. Your PITI here is $505/month. You will be incurring those expenses every month. This will leave you with $245 in cash to cover all of your variable expenses, including management. I personally have never seen a manager take less than 10% (granted, I have no personal experience in SD or in MO but I would be beyond surprised if you could get someone to manage a SFR for less than $75/month and trust you are getting more than lip service). This will leave you with $2,040 in annual free cash to cover repairs, maintenance, vacancies and other variables you may encounter. SD winters are harsh. For example, if the roof fails you will be out 4-5 years of "profit."

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@Cynthia Elder

I agree with what has already been said here! I would definitely rerun some of the numbers with those assumptions in mind. That being said, is there a reason that you’re only amortizing this for 20 years? If you are getting a conventional loan then a 30 year mortgage may help raise your monthly cash flow.

@Parker Jackson I honestly do not know how 20 years was placed in the amortization box. I meant to put 30.  The reason I only have $750 for monthly rent is because thats what the current tenant is paying but I feel it is possible to increase that to at least $850 and have no problems in keeping it occupied.  But I am sure I can't increase it beyond $900 because of the area and its market rents.

@Cynthia Elder

Trimming kind of light, I’d audit repairs expense, management expense(even if you are self managing, for long term), and also cap ex. A lot of investors keep a simple rule of thumb of keep expenses at 30 more towards 40% to be conservative.

But yea id re-run at a 30 year amort and see where your debt service expense is.

Great that you can possibly take rents forward.