[Calc Review] First investment thoughts on how to fully analyze

12 Replies

@Jacob Sampson Thank you! I believe this would be a C+ neighborhood. I did rethink the CapEx after I posted; still good. Thank you for recommending the other figures as well. They would be better aligned and it still looks to be a good potential. What would your next steps be? Start making calls to confirm the numbers? Anything else? Tips for confirming rental market demand? Thanks again! I very much appreciate your time.

Thanks @Todd Rasmussen . I would be interested in exploring the seller financing but am unsure of what those figures might look like. What do you see as being a more realistic value (this is outside California). Thanks so much!

I only invest local to myself so I am intimately aware of my market.  Not sure how I would evaluate demand in a remote market.  Just some random thoughts:

1.  Post an add on zillow with of a home in the area with reasonable pictures to see what demand you get.

2.  Look on Zillow to see what is currently for rent in the area, what they go for, and for how long they have been on the market.

3.  Contact a local realtor and PM to find out what they they the property could rent for, where the good schools are, population size of city and county.

4. Which of the numbers you gave are guestimated? You should be able to get exact numbers on property taxes and insurance from the county appraisors site and by contacting a local insurance agent. Side note - You don't want to insure for replacement cost, you want to insure for purchase price + the money you put in to make rent ready.

5.  Do you know it is in a flood zone and what the flood insurance will be?  the insurance agent can quote that as well.

6. As stated above, if you are getting owner financing it likely will not be the same as a bank. Banks are the cheapest money. The seller will want a higher interest rate. You are better off just coming up with 20% and using bank financing.

7. Finally, call and make an offer...see what happens. And shut down your emotions, they have no place in financial decisions. Save them for friends and family. You define how much you are willing to pay and hold. Don't start getting excited to purchase your first deal. That will cause you to make concessions or compromises that could make what is a decent deal into a bad one. If you find yourself feeling worried or excited or scared or happy or sad shut it down. It's a mathematical equation, that's it.

Originally posted by @Kris Canaday :

Thanks @Todd Rasmussen. I would be interested in exploring the seller financing but am unsure of what those figures might look like. What do you see as being a more realistic value (this is outside California). Thanks so much!

So 4% and 30 year fixed is very doable, but your down payment would need to be 20-25%. Currently your calculation is showing no money down. Your P&I will decrease increasing cash flow but the amount of cash invested will increase lowering your CoC return.


Todd 

Thanks @Todd Rasmussen ! I will play with those numbers so I get a better feel for how they correlate. I was hoping that a seller finance would afford me the opportunity to finance 100% of the deal. I'm hoping to find $0 down investments and thought this might be the first investment that might align with that goal.

@Kris Canaday

I'm sorry, I misunderstood your first response.

If you find the right seller, you could probably find that kind of financing. A common strategy if you were to find it would be to wrap the loan, walk with a downpayment and have some positive cash flow every month as well. That'd be a heck of a first deal!

Thanks @Todd Rasmussen . My fault, I'm sure; I probably didn't use the correct language and spoke to something I was unaware. Thank you so much, again, for your insights. I'm so excited to be learning so much! (And I have SO far to go!)

@Kris Canaday I would look at your prop Mgmt, closing costs, and financing estimates.

Your numbers for capex and prop Mgmt could always be adjusted a little bit but are generally close, the only point I'd add on that is in regard to the placement fee for prop Mgmt. It's usually either first months rent or half of, so if you plan for annual turnover that's either 4.2 or 8.4% per month to account for

For financing, even if they do seller financing you’ll be hard pressed to find someone who is comfortable with receiving nothing up front. Same with the rate...bank rates on investment properties (at least in my area) are around 4.5-5.5%. I always estimate at least 5.5% to be on the conservative end of it, so i would do at least the same for seller financing

Finally, $2k closing costs is incredibly low unless you're doing as little as possible. I usually run about $1600-1800 for attorney and title fees alone, plus $400-600 for an inspection. That's the bare minimum. Check with your insurance agent to find out if they allow monthly payments or if they require payment in full up front. Also, check to see if the property tax bill has been paid or if you will be on the hook for it. Both of these would normally get factored into escrow, but if applicable you'll be responsible for paying them out of pocket

Last note-even if the seller requires a down payment, you have other options. You can use a private loan, line of credit, etc. to pay for it. You’ll still have to factor in that payment and have an exit strategy, but it’s an option

Hope that helps a little bit!