Sanity Check my analysis?

3 Replies

Hi Everyone, 

I am looking at doing my second buy and was hoping I could get someone to check me out. I am at the stage where I need to figure out how much to offer. My first was a house hack so there was little to no risk to me. This is the first time I need to rely on analysis..

There are two duplexes right next to each other, listed at $159k+$165k=$325,000

Current rents are: 3 doors @ $800 and one door at $900 for a total of $3,300 total gross rent. (Passes the 1% rule.. but nowhere near the 2% rule...)

Taxes: just under $1700 for both of these respectively, which I work out to be $283 a month.

Insurance: I got a quote @ $1,303 which works out to be $217.

With Vacancy & Repairs @ 10%, I am looking at $330 and with Cap Ex @ 5%, I am looking at $165.

All added up, my net (before paying for my mortgage) is $3,300-($283+$217+$330+$330+$165)=$1,974. If I can get them @ 300k with 5% interest and 20% down, I should be netting $686 with a mortgage at $1,288.

Does this look worth doing?

I am feeling like a damn robot with the cap ex, repairs, and vacancy. How do I know how to move these numbers around? Can I go softer on these numbers since I am getting 4 doors out of the deal because I am pooling my risk? I honestly have no idea how to intelligently work these. Is it really nothing more than plugging the numbers into the spreadsheet? I suppose I could find out how much estimated life is in the roof and AC and really nail down my cap ex projection, but other than that, not really sure here...

Hey @Spencer Funk

So just to start, I am getting a different cash flow number than you are. With your numbers, gross rent is $3300, mortgage is $1288 and expenses are $1974. This means cash flow is $38 (3300-1288-1974). Now I'm fairly new to analyzing deals too so I could definitely be missing something here. 

In regards to capex and maintenance, this will depend on the current state of the property and how much initial rehab you are putting into it. If you don't plan on putting much into it and some big things like the roof, hvac, water heaters are a bit old, you'll want to set aside more than 5% (maybe 8-9%). Now for repairs I think you are being conservative. 10% is the higher end and this means you expect stuff to break A LOT. So you can get very specific with both of these but I prefer to just do a scale of 1-10 based on how old the property is, how much rehab is going into it, and how much deferred maintenance there is. Obviously, you will get better at estimating these percentages the more deals you do, but being conservative to start is always a good way to go.

If you have any questions or just want to chat, please feel free to message me anytime!

@Brenden Mitchum

Thanks for that. The repairs and things do seem a lot to be setting aside, but together with my underestimating capex hopefully it evens out.

BTW, my expenses were totaling at $1325. The $1974 came after subtracting my expenses from my gross rents. I think that is where we differed. I'll try to format better next time.

@Spencer Funk That is my bad. Your equation go broken up into two lines so I did not realize that was all one calculation. My fault for being lazy and not calculating everything step by step. I see now. So yes it appears you are sane and would be cash flowing quite nicely. Now this obviously does not take rehab costs into account but looks like a great deal upon initial analysis. Keep me updated and feel free to shoot me a message if you have questions!