Updated almost 6 years ago on . Most recent reply
[Calc Review] Help me analyze this deal
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Mark,
My quick thoughts:
-First and foremost, have you walked the property? Is the interior in good shape? How about roof, windows, siding, etc? The little things like that can add up really quickly and end up being more expensive than the purchase price on some of these lower priced properties in the area.
-If they are claiming the property has been rehabbed and the ARV is $49k, why are they not getting $49k for it? That's a huge red flag.
-Your insurance is likely low. Neighborhood factors such as crime, etc will likely be considered by your insurance agent. I would budget for at least $400 or so annually with a high deductible, if it's less than this that's just a bonus for you--but certainly make sure you're getting good coverage.
-10% management fee is pretty standard in the market, and many managers have a minimum price per unit threshold that this may not meet so you may even be paying more. Only 1% off of what you have, but still worth considering.
-You should factor in at least 8.3% vacancy (effectively 1/12 aka one month out of the year) and potentially 16% if you intend to have a property manager place a tenant because they will take a month's rent as commission.
-If you were to take my suggestions into consideration, your cash on cash return is probably going to be less than 10%. That's not very good for a property in a C-/D class area. I wouldn't count on this place appreciating, and would anticipate long vacancy times, and potential evictions on the horizon.