[Calc Review] Help me analyze this deal
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There are already tenants in the place for another 10 months so no rehabbing now. This is at the asking price (without negotiations, yet). The down will come from a partner or private investor so maybe we can split the cashflow.
Would you pursue this deal?
@Adrienne Donner There won't be any cash flow to split, if you consider all your costs. Your costs are on the low side,especially capex. Property management averages 10% or more. let's say everything is brand new. Capex: roof $15000 / 25 life span / 12 months = $50 per month. Flooring 2400 sf @ $6 sf = $14400 / 8 year life span / 12 months = $150 per month. Two items almost exceed your vacancy,repairs and capex budget. I use 23% for those 3 items. I look for properties that are close to the 1% rule. Monthly rent / .01 = max purchase price. So this property would need to sell for $175000 or rents would have to rise to $2300 per month.
@Adrienne Donner - The simple answer to your question, "Would I pursue this deal?" No. Not because it is necessarily a bad deal, but rather the deal does not align with my goals. We look for growth and cash flow. A rental duplex at a 6% CAP base case in that location is probably not going to appreciate too much. So, the answer would be no. If cash flow is your goal, then I agree with @Tim Herman you need to dig into your numbers to determine if it is a deal. In order to due that requires more due diligence as well as an understanding of the capital stack with regard to equity/debt and partner splits.
So too early to tell. If it smells like a deal, keep digging deeper.
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Developer
- One Stop Self Storage
@Tim Herman Are you finding any cash flowing deals with such cap ex estimates for just roof and floors and what size home is that $15,000 roofing cost based o ? I personally, us $5k-$7.5k for roof over 25 yrs (for about 1,250 sf home), $3/sf for floors over 6 yrs (but get flooring at cost so cheaper than normal). I am just starting to wonder if I am way too aggressive in my cap ex. calculations. I also have an additional ~$140 for other cap ex. like HVAC, driveway, appliances, landscaping, etc. Thanks!
@Christian Rojmar I looked up the duplex size and it was 2400 sf. I just redid my personal residence and it is 2200 sf for $15000. In my area for flooring it is $3 sf for rip out and install plus materials. I like the luxury vinyl plank around $3 sf. There is a spreadsheet in the files section done by Sam Tato that has more details on things to consider. In reality if you budgeted for every single thing you would probably not buy anything. For a property like this one I would want to build up a reserve of $15000 before I would start to take any cash flow. The only problem would be in year 24 if the roof and floors all needed to be done the same year. I don't think your extra capex is excessive.
@Tim Herman Interesting! I definitely need to reconsider and analyze the costs of roofing in more detail because I am way lower than you on that estimate! Did you use asphalt shingles for your roofing? And agree regarding never finding a property, I am struggling to find cash flowing properties (unless bad areas) when considering all the cap ex, very frustrating!
@Christian Rojmar I used asphalt shingles on my house. Call the local roofers and ask how much they charge per square(100 sf). Mine was not a real simple roof but had some peaks and valleys. I know Austin is a hot market and don't know if you will find a cash flowing property. You might want to find an area that is transforming and buy there.
@Tim Herman Cool. I have seen estimates ranging from $200 to $350 per square for asphalt shingles which would suggest between $4,400 and $7,700 for 22 squares (flat roof). Obviously that may go up quite a bit with peaks and valleys.
As for Austin, yeah, wrong market if you look for cash flow. I am getting through some books on out-of-state investing and have begun looking in Dallas which is at least a bit better... Unfortunately Dallas is catching up to Austin as well...
@Adrienne Donner nope, I would not. The cost is too high for that rent. On your calcs the expenses seem low on several of them. You don’t show closing costs. Your interest rate is probably too low for an investment property.
@Cole Raiford Thanks for the response! The seller would pay the closing costs and the interest rate is what the bank quoted me for an investment property. :-) But I am afraid the costs are high. I'll keep looking and analyzing.
@Adrienne Donner I agree, good call 😉
Originally posted by @Adrienne Donner:@Cole Raiford Thanks for the response! The seller would pay the closing costs and the interest rate is what the bank quoted me for an investment property. :-) But I am afraid the costs are high. I'll keep looking and analyzing.
Adrienne, I think you are way to low on cap ex and repairs. My guess is over the long haul you will be at 30-40% of revenue on expenses. Ay minimum I would be at 10-15% for each of repairs and capital.
Something simple like a turn between tenants can run you a month, a months rent to lease and $1,000-1,200 for painting, floor repairs, cleaning, new locks, filter, smoke detectors etc.
We generally don't run metrics unless we are getting the property at the 1% rule, or can do some minor rehab to improve the rent/ARv of 1% or better. Then we look at other things like do the numbers work, is this property in an appreciating market etc etc.