[Calc Review] Help me analyze this deal

19 Replies

Hello experienced investors. I've been going back and forth on this duplex trying to make sense of all the numbers and am at a crossroads and would really like some help analyzing this purchase.

I ran the numbers as if I would be renting out both sides since this would be the goal in 1-2 years time; tenants would be responsible for all utilities. Realistically, however, I wouldn't be making any money in the first couple years, only lowering my expenses since I plan on house hacking for 1-2 years. Financing would be through VA loan; I'm fairly confident I could get a 2.5% interest rate or better.

The ultimate goal would be long term cash flow.  But, how do I determine what a realistic dollar amount I should be targeting per door?  Thinking about long term goals I initially had a goal of $200 monthly cash flow per door, but is that too much to ask for in San Antonio market?  This deal doesn't meet the 1%, 2% or 50% rule so is it a dud? 

I'm still active duty therefore I can't go all in on a fixer upper because my schedule and availably is unpredictable at this time so I'm targeting new builds to keep maintenance expenses low. Also, lets not forget the steep taxes in TX...how do I factor in increasing taxes? Am I going to be in a negative cash flow situation in a few years if taxes go up and rent doesn't?

Last thing..the closing costs seem a little low to me but I couldn't figure out how to adjust that.

What say you? DEAL or NO DEAL?  Any feedback you can provide is greatly appreciated; What am I missing? Not taking into consideration? What else do I need to consider? 

Thanks in advance!

View report

*This link comes directly from our calculators, based on information input by the member who posted.

Hi there Pearl. My situation is actually very similar to yours. I used my VA loan to purchase a new build (single-family home) for about 355k with 0% down and roughly $7000 in closing costs. My girlfriend and I live in the master suite and rent out two other rooms for $1800 a month total.

I would say if you are certain about not being able to hire contractors to conduct a rehab, then this would be a good option for you! Don't worry so much about the first two years when looking for whether it is a good deal or not. Also, you can refinance out of this into a conventional loan after several years when you have some equity via market appreciation and principle paydown. Based on the equity alone, you could be near 20-25% down potentially on a new conventional loan in a few years, which could allow you to refinance and have stronger cashflow with no PMI and be able to recoup your VA loan to house-hack again.

In summary I'd say this sounds like a good option, I would just make sure you feel confident both about the type of tenant you would attract and the market rental demands. I like to use Zillow rental estimator, rentometer, and BP insights to gauge the likely monthly rent. Best of luck!

@Shawn Bhatti

Thank you for your input! Your expenses must be really low!

I had not considered refinancing out of a VA loan in a few years. My husband is also AD and based off his job it's likely we'd only be in the area 2 years. However, that's when I become retirement eligible and ideally I'd like to retire and focus primarily on real estate while following the husband around a few more years- or sticking around in Tx and waiting for him to come back. Time will tell.

Definitely plan on doing due diligence with renters. We have a rental in Fl (bought before the crash so was forced to keep) so we have a little experience with good/bad renters. At this time we have a property manager taking care of that house but I've had to do so much work myself that as soon as our contract is over I'm looking at managing it myself.

Thanks again!

We have been fortunate this year since the property is being taxed as land rather than the ad valorem rate. That will change next year but at least increasing job income and rent rates will compensate a little. We didn't consider refinancing out either, but realized after the market cap for a VA loan was removed, the possibilities are now endless. Planning to aim for a 4-unit in a higher-end area and forgoing PMI makes it a no-brainer for us. Best of luck with your plans!

Pearl, I'm also in SA... dual military.  We rent our starter home in NC for the same reasons you rent yours in FL.  I'm new to SA and real estate investment so I won't attempt to comment on your deal.  Just wanted to say Hi and connect.  :)

@H Will

Hello! So happy to connect with like people! Where are you stationed? I’ll be going to Lackland and husband to Randolph making things a little interesting, especially the commute.

Have you done any real estate investing locally? I’m hoping to find some real estate meet up groups when I get there.

I work on Lackland! At least for now... my unit is moving to DC next summer but I won't be going. Trying to figure out my next job now (we just got here this past summer). My husband is in school at Ft Sam. We live on post for now - PCS'ing with COVID ruined our house buying plans and he needed to start focusing on school. I'm actively seeking investment opportunities now while I continue to educate myself. I'm pretty open - maybe a straight SFH flip, maybe a BRRRR multifamily. I'm trying to convince my family (we have 3 kids!) to move off post next summer/fall and house hack.

Originally posted by @Pearl Cook :

Hello experienced investors. I've been going back and forth on this duplex trying to make sense of all the numbers and am at a crossroads and would really like some help analyzing this purchase.

I ran the numbers as if I would be renting out both sides since this would be the goal in 1-2 years time; tenants would be responsible for all utilities. Realistically, however, I wouldn't be making any money in the first couple years, only lowering my expenses since I plan on house hacking for 1-2 years. Financing would be through VA loan; I'm fairly confident I could get a 2.5% interest rate or better.

The ultimate goal would be long term cash flow.  But, how do I determine what a realistic dollar amount I should be targeting per door?  Thinking about long term goals I initially had a goal of $200 monthly cash flow per door, but is that too much to ask for in San Antonio market?  This deal doesn't meet the 1%, 2% or 50% rule so is it a dud? 

I'm still active duty therefore I can't go all in on a fixer upper because my schedule and availably is unpredictable at this time so I'm targeting new builds to keep maintenance expenses low. Also, lets not forget the steep taxes in TX...how do I factor in increasing taxes? Am I going to be in a negative cash flow situation in a few years if taxes go up and rent doesn't?

Last thing..the closing costs seem a little low to me but I couldn't figure out how to adjust that. 

What say you? DEAL or NO DEAL?  Any feedback you can provide is greatly appreciated; What am I missing? Not taking into consideration? What else do I need to consider? 

Thanks in advance!

View report

*This link comes directly from our calculators, based on information input by the member who posted.

$200 per door will not be enough to profit when a capital expense or evicition happens. Not enough money in the reserves after the expenses. Is it worth it? Id say no. It may take 4+ years just to get back the lost money and you didnt make any money. Or, if you did make a little money it doesnt outweigh the headache.

@Anthony Rosa

Hi Anthony, the goal of having $200 cash flow per door is after factoring in 5% for repairs and maintenance, 3% for vacancy, and in the case of a new build 1% for capital expenditures. If all these expenses were changed to zero. I’d be looking at over $400 cash flow.

Often times when you are starting out and not putting much down it is helpful to look at the long term plays. In 5,10, even 30 years from now the asset will be worth so much more and will be paid down which will help creat wealth for you and your goals.

Cash flow per door is not everything, Looking at your Cash on Cash is good on this report and focus on your ROI too. When your total ROI is over 200% in year one it is hard to get that in any other type of investment.

Best of luck and keep us posted!

That is definitely not a deal in my opinion. Unless it's an extremely nice area and you're in love with the property I would pass.

@Stone Saathoff

I value your input! I've been following you for a little bit and know you are in San Antonio so any information you can provide about the local market, I'm all ears.  I don't necessarily LOVE the area but I don't despise it. The things that are attractive to me in this deal are: 

1. Its a new build therefore low expenses - at least for a few years. 

2. Its a gated community, which I hear is a huge plus in the area it's located.

3. Its a sacrifice for our family but not an uncomfortable one. We have kids so 3 beds are ALMOST a necessity for two boys who are 7 years apart. I say almost because I grew up with three brothers and all three shared a room for years...so it's certainly doable for them to share a room for a year.  In this new 3/2 new build we would probably house hack for longer than we would a smaller duplex. 

The numbers certainly don't meet my ideal criteria, however, when the second side is rented it would drastically decrease our monthly expenses and a newbie has to start somewhere. Right? ;)

Do you have any feedback on whether or not $200 cash flow/door is even feasible in a San Antonio market? Am I aiming too high or too low?  And, what would it take to meet this target? Would I have to find homes that need major renovations?  If so, I'm not completely opposed to that, however, that would have to be down the road in a few months. My priority now is finding a roof to put over our heads while hopefully getting lucky and acquiring a rental in the process. 

Thank you for your feedback!

@Pearl Cook if you feel confident in your assumptions, it's hard to look at a 39.18% Cash on Cash return and think it's not a good deal. Where else are you going to get that level of return, and that's not even counting your equity paydown and appreciations. This is the problem you run into when you try to use blanket rules of thumb like 1% rule or $/door. Those may be appropriate in certain situations, but may not be when you're looking at 100% financing for an owner occupied property where you want to live in one of the units. 

Keep in mind, people have been using the 1% rule since I started in this business when interest rates were 6.5%. My very first investment was a 1% rule duplex that I lived in, and I was excited to get a 6.5% on my VA loan at the time. With interest rates that are less than half that, naturally the rent to price ratio is going to compress some. Most of my multifamily investors are looking for 0.8%+- when buying properties built in the last few years At 0.75%, this is pretty close.

$200 per door is difficult to obtain with relatively new turn-key multifamily property here in town. I think it's nearly impossible with 100% financing. Right now, there are a lot of investors buying these properties with just over neutral cash flow in year one. These are data driven professionals that are projecting strong rent growth and appreciation in the areas they're targeting. That style of investing isn't for everyone, but you'll find that those buyers are the people setting the prices in our market today.

 

@Pearl Cook $200/mo per door in cash flow is certainly achievable in our market. Almost every customer I have that does long term rentals hits or exceeds this number. These are all value-add deals though, on a new build I would imagine that is very hard to hit, if not impossible.

@Stone Saathoff

That’s great to hear. I plan on looking at more investment opportunities after we get settled. For now, I’m focused on finding a place for the family.

Till then I’m trying to learn what I can through podcasts and reading others’ posts.

Thanks again for your input!

Originally posted by @Pearl Cook :

@Joseph Cacciapaglia

Thank you for your insight! Wow, over 6% interest rate? The times have indeed changed.

Are you in San Antonio? Once we get there and settled in I’d like to start looking at more investment opportunities. Thanks again.

 I am in San Antonio. I'm happy to share any insight I have on the market here.