Please help me analyze this deal!

8 Replies

Marcus, These numbers dont excite me either. I played with the numbers to having the purchase price being 249,900 and that gave me a COC ROI of 11.77% and monthly cash flow $254. It is a great neighborhood and below market value as is ( 274,500). The expectation is that appreciation will also be a part of the calculation, long term. 

My estimates on rehab are primitive. There is no inspection report from previous buyer, which purchased a home that was turn key. This property is outdated both appliance wise and cosmetically. Do you have any suggestions on how I could get better estimates? 

While the rent estimate is an average of 3 sources; real estate agent, BP Insights and Zillow comps. 

Originally posted by @Marcus Auerbach :

@Jessica Khokhlan - those numbers would not get me excited, but the bigger question is how good are your estimates on rehab and rent? 

 

@Jessica Khokhlan A few things stick out to me: 

1. No insurance? 

2. Management fee 5%. Did you confirm a property manager will do this for 5%, or are you self managing and "paying yourself" 5%? 8-10% may be more realistic.

3. No fees to refinance in 6 months? 

The good thing about this deal is you're only putting 3.5% down and then you pull-out all of your cash when you refi. If you add in the cost for insurance and higher property management fees, you'll break even each month. You're relying on appreciation for this deal to work. There are likely better options out there.

Hey Jon, 

Thanks for the feedback! 

1. Good call. I didn't add insurance and quite frankly, dont know how much it would be monthly. 

2. I will be self- managing initially and "self-paying" , but with time I would then hire out a management company. I will adjust to 8-10% 

3. I would need to research more on the fees for a refinancing . I have not done a deal yet so I am still learning the intricacies. Do you know if I would need to each individual bank to find out the fees? 

Do you think if i would get it for a lower purchase price like 250k, that the numbers would align better? Given the adjustments recommended. 

https://www.biggerpockets.com/...

Not sure you can see the link above. I adjusted the purchase price and added the adjustents and it comes in at 7.3% COC ROI and $53 cash flow 

Originally posted by @Jon Kelly :

@Jessica Khokhlan A few things stick out to me: 

1. No insurance? 

2. Management fee 5%. Did you confirm a property manager will do this for 5%, or are you self managing and "paying yourself" 5%? 8-10% may be more realistic. 

3. No fees to refinance in 6 months? 

The good thing about this deal is you're only putting 3.5% down and then you pull-out all of your cash when you refi. If you add in the cost for insurance and higher property management fees, you'll break even each month. You're relying on appreciation for this deal to work. There are likely better options out there. 

 

@Jessica Khokhlan you won't like this answer, but you need to set your own criteria on what makes a good deal. Do you want a minimum 12% cash-on-cash, $100-200/mo in cash flow? Come up with these parameters and then you can adjust the purchase price to know the maximum price you can do up to. 

You can call individual lenders to understand their fees. Without knowing anything else, I would estimate it to be the same as your initial loan. 

Not sure what gave you that impression, but I appreciate your feedback. 

I don’t know this market well enough yet to understand which would be well suited. I have my work cut out for me. 

Originally posted by @Jon Kelly :

@Jessica Khokhlan you won't like this answer, but you need to set your own criteria on what makes a good deal. Do you want a minimum 12% cash-on-cash, $100-200/mo in cash flow? Come up with these parameters and then you can adjust the purchase price to know the maximum price you can do up to. 

You can call individual lenders to understand their fees. Without knowing anything else, I would estimate it to be the same as your initial loan. 

 

Originally posted by @Jessica Khokhlan :
Marcus, These numbers dont excite me either. I played with the numbers to having the purchase price being 249,900 and that gave me a COC ROI of 11.77% and monthly cash flow $254. It is a great neighborhood and below market value as is ( 274,500). The expectation is that appreciation will also be a part of the calculation, long term. 

My estimates on rehab are primitive. There is no inspection report from previous buyer, which purchased a home that was turn key. This property is outdated both appliance wise and cosmetically. Do you have any suggestions on how I could get better estimates? 

While the rent estimate is an average of 3 sources; real estate agent, BP Insights and Zillow comps. 

Originally posted by @Marcus Auerbach:

@Jessica Khokhlan - those numbers would not get me excited, but the bigger question is how good are your estimates on rehab and rent? 

 

Your agent should have a suggestion for a contractor to help with that. You may have to offer to pay the contractor.