[Calc Review] Help me analyze my 1st deal.

5 Replies

Hello BiggerPockets Members,

I will be submitting an offer soon on this property.  Since it's my first i'm looking for advice from the experts.  Any tips and advice you can offer I would be glad to receive.  For example, purchase price in the calculation is also the list price, but i'm for my initial offer I want to go lower.  But how much lower should I make my offer?

I'm using the VA loan because I like the 0% down and no mortgage insurance features. I don't have cash available to add to this deal.

I also wonder why the Cash On Cash ROI is so high. Is this a flaw in the programming of the calculator itself? has anyone encountered this?

@Kevin J Boyer must be nice to have a nothing down property with that low of an interest rate. No other expenses like water and sewer or garbage. Expenses are low especially your capex. I use 8%vacancy,5%repairs, and 10% capex. Example of flooring capex. 4000 sf per description @ $6 sf = $24000/8 Year life span/12 months in a year=$250 per month. Still have to account for hvac,roof,painting,hot water heaters,appliances,etc.

Your CoC is that high because the only cash you're putting in is closing costs. Math works like this:

( (Monthly Cash Flow x 12) / Cash Invested ) x 100 = CoC Return %

( (456.79 x 12) ) / $1,976 ) x 100 = 277%

Hypothetically, take away closing costs and actually put $0 into the deal and your CoC is infinite because you put nothing in and have a return. Pretty sweet deal.

CAP rate seems pretty weak being under 8%, but that's a personal preference not a universal rule.

I don’t know where the building is but it looks old and the area looks pretty shaggy but I can’t tell from that what buildings in that area are selling for. Do you have comps? It’s still going to need to appraise for something close to what you’re trying to buy it for.

If it’s in tip top shape (like new) in all the major expense items like roof, HVAC, etc and all it might be a score.

Also rental history would be good to verify. Make sure it actually is producing those numbers for you.

That’s all I got.

Thank You Tim,

All utilities are renter paid.  But I don't yet know what the costs are for other expenses like water and sewer or garbage. -I'll look into now.

From the owners description, "the roof is new in 2019 and everything else is newer such as the furnaces, central air, water heater, kitchen, appliances, and bathrooms."  I don't have expenses on sewer and water, but you inspired me to ask about them from seller.  Since the roof is new I stayed with Cap Ex of 5%, but I see by your example you use 10%.  I'd like to hire a property management company to manage it for me as I still work full time so I calculated a 10% cost for that.

Thank you Landon, 

For the education on CoC. I hadn't realized my high CoC is due to putting nothing in. I feel better about the numbers now.

Thank you Sean,

I thought a Cap Rate was more relevant to properties with 5 or more units? The seller has not provided any information on rental history, yet. I've been searching the county assessors page for previous owners, purchase dates, etc. And relying on Real Estate agent to comb through MLS for nearby sales. Comps are varied because this property stands unique in its neighborhood. It's the only 4 plex within a mile of its location. The nearest 4 plex sold for $315K at end of 2018. I am basing my ARV on that number. Next highest sale price within 1/4 mile was $250k for 3bd 2ba.

I appreciate the tip to look into rental history. -I'll ask for more information on that point.