Is this a Good Deal or Bad Deal?

Question

Hello! I'm still very new to this whole REI thing, so I'd like someone to re-check my numbers?

https://www.zillow.com/homedetails/5410-Albemarle-Rd-Charlotte-NC-28212/6227106_zpid/

Here's the thing: I'm off to college next year and I don't have much cash saved up (lots of after school activities & not enough time for a job), so I have no real reason to make any offers yet. But hypothetically, this quad would rent for $1,600 a unit and I'd like to think I can get it for $475,000. In the Zillow ad, taxes are said to be $5,258 annually and I estimated insurance to be $2,635 annually. With an FHA loan and estimated closing costs, I'm assuming the initial investment will be $21,125 for a 30 year mortgage at 5% interest with 3.5% down. I would live in one of the units of course, and even including management, I'd break even (cash flow would be $1.52 per month). However, as I'd be on site and I have no problem getting down and dirty, I'd manage the property myself to save $720 a month (15% of income). With this accounted for, the total monthly cash flow comes out to $721.52, and the COCROI is 40.99%. After 3 years of living in it, I'd move out using a HELOC to start BRRRRing, and that opens up the final unit to be rented. With all four units providing monthly income, I expect this property to be a cash flow machine.

Do these numbers look correct? The property has been on the market for 166 days, so am I missing anything?

Joe Villeneuve · Answer

U can see right away were most of your mistakes are made...all based on the same problem.  You'r estimating everything and using numbers on the high side.  Why do I say this?  It's all in the words you are using to describe this deal.

Examples:"... hypothetically, this quad would rent for $1,600 a unit...""...and I'd like to think I can get it for $475,000..." "...I estimated insurance to be $2,635 annually..." "...estimated closing costs...""...I'm assuming the initial investment will be $21,125 for a 30 year mortgage at 5% interest with 3.5% down...""...I would live in one of the units of course..."  Did you account for the loss in 1 rental income and the added unit costs usually picked up the the tenant?"...including management, I'd break even (cash flow would be $1.52 per month). However, as I'd be on site and...I'd manage the property myself..."  No you won't...do your own management that is.  You did mention you'd be attending school right?Nobody can figure out if your numbers are right, because you don't really have any numbers...yet.

Ean Bass · Answer

Thanks, @Demarcus Crump.

@Jaron Walling; Yes, I forgot about PMI, and it really skewed my numbers. The list price is $550,000, but it has been on the market for over 5 months and it's not worth that much anyway, so that's why I dropped the price. Without a property manager and including PMI, monthly cash flow is $327.52 with 3 units occupied. This comes out to a COCROI of 18.60%. Definitely a little bit more reasonable?

Demarcus Crump · Answer

@Ean Bass Whatsup bro, we’re both fairly new and your situation gave me sometime to practice and hopefully someone reads over both our messages and critique. But after reviewing the EXACT numbers you posted your initial investment of $21k is almost 4.5% of pp, which I thought on FHA is 3.5%. So I ran it with 3.5% and got a DP of $17k (add in closing cost, and etc). Mortgage $2550/ mth , Then $1600 from each unit was $6400/mthly revenue then after expenses such as PITI, Vacancies, CAPEX, repairs, PM, not including UTILITIES cause I’m assuming everyone is paying that themselves but your expenses would be around $4800 leaving you with $1600 cashflow. Now assuming my numbers are ran correctly it seems like a great deal, now you just have to put it in action. Only my opinion not my advice, please seek more experienced guidance

Jaron Walling · Answer

Regardless of everything you said the property has been on market for a long time. That's a red flag. The pictures look great  but your rental income could be incorrect, deferred maintenance could high, or finding quality tenants for that location is difficult. The price/rent is way over the 1% rule. Other investors would have scooped this property up already for cash. COC of 41%?... I don't see that happening in today's market. I would double check the numbers because something doesn't add up.

Is this a Good Deal or Bad Deal?

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