[Calc Review] Help me analyze this deal

10 Replies

This is my first analysis. I'm hoping my numbers aren't too far off. I've been listening to bigger pockets now for about 6 months and have learned alot. Thought it was time for me to get my toes wet. 

If you see anything blatantly screaming "incorrect info", please share your concerns.


Thanks in advance,  

$84K for $1100 knocks the 1% rule out of the park. Looks like you're spending $10K to get $300 cash flow, assuming you'll refinance the costs of rehabbing and you leave the $10K in it. This deal is very exciting to me and I would absolutely jump on it. 36% ROI, how is that a bad thing?

Hi @Aaron Furr , I read your blog article and the deal analysis.  Have you considered Section 8 housing?  You'd have similar drawbacks in terms of clientele, but at least the checks would be more regular.  More info here.

Also, consider finding a local property manager before you close on this deal, and ask them for their advice.  It'll be hard to find a PM who specializes in managing transitional housing, so it might make sense to start that process sooner rather than later, so you can be ready when you find that deal which makes you say "Heck yes".

Hey there @Richie Thomas,

Thanks for this article and advice. I can understand where the PM could be a headache, I'm currently debating whether it would be beneficial for my wife to take this role as we are about to have our first child. This would allow her more time with the baby, and I could pay her wages rather than a stranger. Yes, I understand there are drawbacks to this, such as, lack of experience but she, like me, is a very fast motivated learner. What are your thoughts on this?

Thanks for all that have given input,

I'd say it depends on your risk tolerance.  The fact that you both are fast learners will obviously serve you well in real estate.  If it were me, I'd prefer to learn from someone else's previous mistakes, rather than my own.  At least for the first few deals.  After you've got this PM handling your first few properties, you'll have built up enough experience to take over these and future properties yourselves.

Excellent advice @Richie Thomas! I'll definitely take this into consideration. Last question you may have an answer to. Section 8, does this require licensure? Because hacking the house into 4 "residential" units isnt classified as a "facility offering services". Where as to get government funding I have heard licensing can be a real booger...

Thanks again,

I'm not sure what you mean by "hacking the house", @Aaron Furr .  Is your intention to house-hack?  Or will you be renting out all the units to transitional housing tenants?

In terms of licensing requirements, I'm not a ninja Section 8 investor by any stretch of the imagination, but I did do some research and came up with the following.  It seems that Section 8 requirements for landlords look more or less like the following:

1) Landlord submits a request for approval.  The application may look something like this.

2) Pass initial and yearly HUD housing quality inspections.

3) Collect security deposit and monthly rent.  Section 8 apparently does not cover the deposit, and they only cover a percentage of the rent, not all of it.  The portion paid by the tenant will be paid directly to you by them, and the Section 8 portion will be paid to you by the government (not sure if this comes in the form of an ACH transfer, a check in the mail, or something else).

4) Adhere to the terms of the lease, and address any maintenance requests promptly in order to stay in HUD's good graces.

5) Notify HUD if you plan to raise the rent. You're only allowed to attempt a rent increase once per year.

----------------------------------------------------------------------------------------------------------------

Source for the above info here.

More info from HUD, including how to determine Fair Market Rents in your area (i.e. how much HUD will let you charge) here.

How to find your local Public Housing Agency (if you want to apply to be a Section 8 landlord) here.

Info from HUD on inspection requirements here.

  Thanks I have more to consider now. And as the "hacking the house" goes, in theory if I rented the 3 bedrooms out to individual tenants, the garage could be converted into a 4th as it already has a bathroom. The 4th unit could house a PM or possibly a councilor for the tenants. Giving you your eyes on the property at all times.

These key points about section 8 you pointed out is my action move today, I'll be reading through all of this and decide if/how it can be implemented. As I said before there are others already in town but all at capacity. I'll do some digging around.

Thanks again,

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here