Could I get some help analyzing this SFR deal?

Question

Hi all, Thanks for taking the time. I'm brand new to real estate, so wanted to get some advice before I move on this deal.

Here's the rundown:

Type: SFR townhome 3bd/3ba 1,642 sq ft.

Cost: Upper 280s but I want to get it down to $275,000

Financing: 30-year mortgage, 25% down

IR: 3.5%

Maintenance Budget: $1,500/year

Rent: $1,650

Monthly Cash Flow (based on calculations): $233

This is in a military town with current military residents.

So, if I were to buy, I would already have tenants for at least another year.

Also, I'm going straight for a cash flow property because this is my first one and I just want something that's going to be relatively safe and conservative.

I'm not really betting on appreciation or anything, and my calculations are based on never raising the rent at all. Though in reality, it would probably be pushed to $1700 or $1750 after the current contract is up.

Any thoughts? I'm happy to provide more info if need be.

Thanks!

Jaysen Medhurst · Answer

Almost no way this property will cash flow, Account Closed. The price-to-rent ratio is way out of whack. You didn't provide costs for taxes or insurance, but here's how I'd look at the numbers.

$1650:   GSR  ($83):   Vacancy, 5%($248):    Repairs & CapEx, 15% combined($164):    Management, 10%. Always include Management, even if you plan to self-manage at first($926):   Debt Service

=$229/month cash flow before taxes and insurance. My guess is that those costs will likely be $400-500/month, putting you into the red.

Once prices on SFRs start to creep above ~$130k, the numbers get more and more difficult.

Kevin Hunter · Answer

Just with you initial numbers, and your insurance and tax numbers above of 80 and 216.67 respectfully, you are red.  I will take a look at your calculator and see if I am missing something.

Andria Kobylinski · Answer

Account Closed

I agree with these guys. Have you gotten pre-approved yet? You might pay a little higher interest and unless your paying cash your closing costs will be higher on that property. I also buy in VB/Norfolk and am an agent in Richmond. Check out the Facebook page "Hampton Road Real Estate Investors" there are wholesalers and great deals on there. Also check out your local investing meetings. trigofva.com for networking and they have properties on their website. Hope this helps.

David Pere · Answer

Account Closed on this one. A little too close for my liking. Especially with the amount of capital you need to dump into the deal. You could dump $50k into a passive syndication and most likely do better than that.

Have you networked with local wholesalers? They should be able to bring you deals with a little more meat on the bone!

Trevor Ewen · Answer

Account Closed

Agree with @Jaysen Medhurst on this one.

Curious what base this is near? This actually seems quite high (purchase price) for a typical military rental.

Kevin Hunter · Answer

Account Closed, this deal doesn't cash flow.    I would look at other options if I were in your shoes.  Could you buy it and rent out two of the bedrooms and live in the third.  If that is not something worth considering, I would look somewhere else.

Some of the areas that I didn't see included in your calculations are the Homeowners Association fees per month, capital expenses ( its a condo so they should be low, but when the condo needs a new roof, you will pay your share), property management fees (at some point you may move out of the area and decide to use a manager).

Good job finding a deal to analyze.  Remember, this is not emotional so don't allow that to creep in ( absolutely easier said than done). And if you are ok shelling out around 500 a month to cover all your expenses, after paying 57K down, then you have to do what is right for you.  As an investor with multiple properties, that would be too much negative to incur.

Good luck!!

Jaysen Medhurst · Answer

Yeah, Account Closed, using my underwriting that puts you in the red by ~$70/month. I definitely would not do this deal.

David Pere · Answer

Account Closed have you used the BiggerPockets rental calculator? I think you should run this through their rental calculator, and then I'd be happy to take a look and help you analyze pros/cons!

Account Closed · Answer

@Andria Kobylinski Thanks for the links! I'll definitely keep my eyes on them...looks like some good deals might come up there.

@Laura Tokgozoglu Thanks for your take but I think I'm gonna pass on this one.

Account Closed · Answer

Oh wow, there's a unanimous consensus on this one lol.

@Jaysen Medhurst and @Kevin Hunter thanks for taking a look at this deal. I appreciate the feedback. Yeah, I thought I was accounting for everything in my calculations, I suppose I need to tighten up the numbers in the future. @David Pere Thanks for the wholesaling tip. Yeah, based on what I read around here, I thought that initial capital outlay might be a bit high. But thanks for the wholesaler tip, I'll put some feelers out. @Trevor Ewen It's in Virginia Beach. But it's not in a neighborhood close to the base, it's just being rented out by a military family stationed in the area.

Could I get some help analyzing this SFR deal?

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