Am I doing my rental analysis right?

Question

Hello I am currently a 21 year old trying to practice doing rental analysis on rental properties mostly on duplexes and some SFH. I found a multi-family home on homes.com and here is the link. https://www.homes.com/property... I did an analysis with the bigger pockets rental calculator and it says the monthly cash flow is $730 a month and the COC ROI is 4.87%. This doesn't seem right because I watch Brandon Turners real estate videos and the COC roi should usually be in the 8% - 12% range, but 12% is where you should be aiming for. How is it that the monthly cash flow is so high, but the COC roi is so low? am I calculating something wrong? Here is what I put in the calculator -

- 20% down of $220,000 so my down payment is $44,000

- Purchase closing cost of $4,000

- The mortgage rate of 4% with a 30-year term loan

- Property management fee of 10% a month

- The rent charged for a month $1,650

- Property tax $220 a month

- Insurance $77 a month

- Repairs maintenance a month 5%

- Vacancy rate a month 5%

- Capital Expenditure rate a month 5%

- The tenants will pay electricity, sewer, gas water, HOA fees, and garbage

Can someone tell me If I miscalculated something or did something wrong? It is a duplex property in Houston, tx with 4 bedrooms

Tim Herman · Answer

@Austin V Nguyen Some markets you can't find 1%. It's just to help sort out what properties to examine closer that will cash flow. If you are in a low property tax state you can cash flow at less than 1%. Vacancy is how often a tenant moves out. 5% vacancy is 5/100 or 1/20. 1 month vacant out of every 20 months. I use 8% or 1/12.5 or round down to 1 vacancy per year. If you going to be on the forums you need to learn to tag people. Use the @ sign, start typing their names and it will appear. Double click and it will populate the comment box with their name in blue. They are then notified about that thread.

Tim Herman · Answer

@Austin V Nguyen even with your optimistic soft cost you only net $1200 per year on an investment of 44k dp and $6k closing cost. 1200/50000=2.4 cash on cash return. Vacancy of 5% is your tenants staying an average of 20 months. Capex of 5% won't cover what you need to save. Floors have a 10 year life span. Assume 1000 sf of flooring per unit. My area it is $6 sf to replace. 2000 sf*$6 sf=$12000/10 year life span/12 months in a year=$100 per month. 1 item already exceeds your capex budget. My capex budget also includes roof, appliances, hot water heater, hvac,bath and kitchen remodel. I use a minimum of 10%. Take another 8% off cash flow. 210/50000= .4 %.Cash on cash. A quick way to analyse properties is using the 1% rule. Monthly rent divided by 1%. $1650/.01=$165000 max purchase price.

Austin V Nguyen · Answer

@Ryan Johnson I will likely hire a property manager even though I know they take about a 10% fee every month, but we will see once I calculate the expenses and operating income.

Austin V Nguyen · Answer

@Tim Herman Okay gotcha I really appreciate the info and help Tim! Much appreciated

Ryan Johnson · Answer

Your rents are incorrect. Pull up The property on the HAR app. The rents are $2435 monthly not $1600.

Also is this your first property? Can you manage it yourself?

Austin V Nguyen · Answer

Ah okay I see I understated the capital expenditures. I used Brandon Turners The Quick and Dirty Way method on Analyzing a property. I am just a little confused on the Vacancy rate and calculating the capital expenditures. So when buying a property for a certain amount I should use the 1% rule for finding out the max purchase price?

Am I doing my rental analysis right?

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