Help me analyze this deal - Expense % mistake?

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Hi Everyone,
I'm a newbie here and trying out the analysis tools. There are 2 homes on 1 lot. 3/2 and a 2/1. Seller is asking $439,000. The numbers didn't look good at all, so I reduced it to $415,000. Is it possible my expense % are off for this CA market? Property is in Chico, CA. I tried going to Rentometer to figure out rents, and it came back pretty low at $2360 for both units. After going to Craigslist, I raised rents to $3100. The numbers still aren't profitable. Thanks very much for your feedback!

~ Adam

Tim Herman · Answer

Account Closed your are underestimating your expenses. Capex examples roof 1 $7500 roof 2 $5000.  $12500 /25 life span /12 months = $41 per month. Floors  1 1500 sf 2 1000 sf= 2500 sf @ $6 = $15000 / 8 year life span / 12 months = $156 per month. You need to budget for appliances,hvac,hot water heaters, etc. I use a total of 23% for vacancy,repairs and capex. Don't think you will find a property manager for 8%.

Brent Silberbauer · Answer

I'm a local manager from Chico.  We would manage both houses for 9%.  You can find managers out there who will do it for 8%, but then you start getting into discount managers and you will trade off quality service, which in my opinion would be a bad trade off.  Typically in you'll see 9-10% management fees.  Some managers charge for turnovers, other's don't.  You just have to call around.  Additionally, out of state owners are charged an additional tax from California (the land of taxes).  Lastly, the rental market here is very strong.  Vacancy rates have been hovering around 1%, but there are about 1,000 new apartments in the local planning commission pipeline that will cause the vacancy rate to rise.  Just a few other things to consider.

Michael Roth · Answer

Also keep in mind that due to the Camp Fire the City of Chico passed an ordinance that you can only raise rents 10% on an annual basis.