This is projecting negative cash flow for years. (Unless I am reading this wrong. In that case, someone set me straight.) End of story.
Hi Ann: That's what I thought also, and I couldn't believe it. Maybe my numbers are wrong, but I don't want to plug in unrealistic numbers either. Thanks for your input!
@Ruth P. looks like this wouldn't work as a BRRRR deal, but have you considered a fix-and-flip? Those post-refi expenses kill the chance of a buy-and-hold play, but if the asking price is currently at $140k and you're able to pay cash (which it appears you are from the pre-refi acquisition costs), that cash offer may give you leverage to offer a lower purchase price (unless you've already factored that in). I ran the numbers on a fix-and-flip deal and (unless I'm way off on my figures) it looks like you aren't too far off from a healthy profit.
This of course assumes your after-repair value of $233,000 holds up. How did you arrive at that number?
@Ruth P. , this deal may have legs. Especially, if you can get all of your money out of it at refi.
Is this a duplex or 4-unit? How confident are you in your rent, renovation, and ARV numbers?
Your analysis needs some adjustment:
- One month rehab time is probably unrealistic. Theses things always take longer than expected.
- You should expect 6 months to refinance. That's a typical seasoning period.
- Vacancy, repairs, CapEx and Management are all pretty high. I usually figure Vacancy (8%), Repairs & CapEx (15% combined), and Management (10%). Depending on how extensive the renovation is, you may even bring down Repairs/CapEx to 10% combined, at least for the first few years.
- Water/Sewer looks a bit high for a duplex and low for a 4-unit. I usually expect $30-40/unit/month. Call the local water department and get last year's bills.
- Property Taxes, if you're actually adding ~$100k of value, you should expect these to go up upon reassessment.
- What about lawn care and snow removal?
- Why the $3k in points? Can you find a better loan? The rate is good, but I bet it's worth paying a bit higher rate and putting some more money in your pocket at refi.
I think you might be able to squeeze out $200/month. That's not great per-unit income (duplex or 4-unit), but if you've got nothing in the deal...
Thanks Richie (all puns intended, ha, ha), and Jayson for your input! Richie, the after repair value was from looking at comps and adding/subtracting value as described in an article I saw written by J. Scott (can't remember the name of the article). Jayson, this is a duplex. I am not confident in my numbers; I did this as a practice and it turned out not so great, as you said. Thanks so much for your take on what the numbers should be. That helps a lot! Right now, I am really practicing running the numbers and I am in the process of trying to find my dream team of rockstars, as David Greene writes about in his books. I am looking to buy my first property in Kansas, Florida, Pennsylvania, or New Hampshire.
As a long-term buy and hold it doesn’t work if your predicted vacancy, maintenance, capital expenditures, and management fees are correct. It looks like you’re after rehab expenses exceed your gross income by several hundred dollars and that doesn’t include debt service if you were to refinance.