Help with my analyzing this deal
Do these numbers make sense? They want to include all utilities in the rent and also charge me an annual lease renewal fee per apartment. I honestly feel the fees are way to high, and don't understand my advantage to include the utilities in the rent.
6 plex - 180K
From them:
Financing: 25% down, 25 year term, 4.0% rate (long term loan after renovation complete)
- Closing cost: $2k
- Property tax: $1149.40 (From auditor’s website - 2020 payment amounts made)
- Insurance: $1980 (Assuming 1.1% of value $180k end value - ours runs right at 1%)
- Maintenance: $1800 (7.5% of no-utility rent. Industry averages are 5-15%, so biased downward with lots of renovations initially)
- Other costs: $18,150 (Utilities - $.275 per sq. ft. * 5500 sq. ft. - We see and use $.21-$.22 for our properties, plus lawn care. Hypothetical lawncare cost for — 1.5 hrs charged for 1.5 mowings per week for 6 months at our hourly rate = $.03 per sq. ft.)
- Monthly rent $3150 (described below, but a huge variable)
- Vacancy rate: 5% (ours is no-kidding negative back to Jan 2019 since we routinely collect extra income for folks that want to move early to buy, etc. Industry averages range from 5%-10% and banks will normally bake that range in too)
- Management fee: 9.5% (based on 6 units - this would be 10% for 5 if we didn’t split unit L)
- Holding length: 20 years (? - we plan on holding until we pass away and give stuff to our kids, or 1031ing. Not sure this calculator will give you and visibility on capital gains taxes to be paid if you do sell at some point - consult your CPA)
- 3% appreciation on all costs/values (the calculator had this as a default)
- This calculator doesn’t have anywhere to set the turnover rate for tenants and the costs that come from that, so this scenario would be with tenants that stayed 20 years - haha. As mentioned, we have an 88% retention rate on our portfolio as of this past leasing season (industry average is ~50% retention), so you could make some sort of guess at how the tenants will act and then multiply half a month’s rent (or $250 min) for each flip done for the leasing fee as an additional cost.
- You can see how all these assumptions can just increase the “beta" of the investment a LOT with each tweak!
Those MANY assumptions spit out a max of $180k total investment to get you 12.23% IRR.