Deal Analysis #2- Bonita Springs, FL 34110

I recently set a goal of writing one deal analysis per week, and writing a blog post for each one.  I learned a lot while writing my first deal post last week.  I look forward to applying it to the deal I examine this week, which is located in a completely different part of the country- near Naples, FL.  I also look forward to finding some new tools to add to my toolbelt.

I'll follow a similar format as last time, only this time I'll be using the BiggerPockets rental calculator.

Without further ado, here's the property:

I'm going to try to keep this analysis much shorter than my last post.  Brandon Turner talks about how deal analysis is a numbers game, which I means I need to analyze a lot of properties (and make a lot of offers) before getting my first one accepted.  The name of the game is velocity, so that's where my focus is now.

Property Description

This is a 1-bedroom condo in Bonita Springs, FL which has been on the market for 67 days as of today.  Built in 1981 and has 570 square feet of space.  Judging by the photos, there isn't a lot of natural light in the property (at first I thought it was a basement unit from the lack of windows).  The asking price is $90,000, the HOA fees are $320/month, and the property taxes are $792/year.

No additional info was found on the Lee County Property Appraiser site, presumably because this is a condo instead of a single-family house. Additionally, no tax information could be found on the Lee County Tax Assessor's site. This just means I'd want a bit of extra precaution when it comes time to do title and lien searches.

Area Description

The surrounding community of Bonita Springs, FL went from 15,600 people in 2000 to 20,700 in 2010.  That's a trajectory I like (especially with rentals), and we're about to have another census in 2020, so I'll keep my eye on that.

The number of renters here is 23% vs 36% for the state as a whole, which is not great news but there is other info working in our favor which makes me care less about that disparity.  Namely, Bonita Springs is one of the safest communities in Florida according to NeighborhoodScout.com.

96% of Bonita Springs residents have graduated from high school, 45% have graduated from college, and 20% have a graduate or professional degree.  So it seems like there's a good mix of blue-collar, middle-class, and wealthy folks living here.  The median age is significantly above state average and the number of college students is below state average.  This leads me to believe that Bonita Springs is a nice, quiet area where folks go to retire.  Sounds like my ideal kind of tenant.

Purchase Price

Initially I'll plug in the full asking price of $90,000 as the sale price, to see what the numbers come out to.  I think a lower price is more realistic considering how long it's been on the market, but we'll come back to that.

For "After-Repair Value", I'll put a bit of cleanup work into it ($5,000 estimated repair costs) and say $90,000.  I'll budget $4,000 in closing costs.

Loan Details

I'll budget a 20% down payment and a 5.8% loan for an investor property (rates for these are higher than for owner-occupants).  Just to be safe, I'll also budget 1 point on the loan up-front.  I'll amortize the loan over 30 years.

Income

For the monthly rent, I'll take a look at what Rentometer.com says:

Based on the above data (median rent of $1,299 for a 1-bedroom in the neighborhood), I'll budget the same figure.  I'll budget no other monthly income, and I'll ask the tenant to cover their own electricity, water, and gas.  I'll cover $25 for garbage, the HOA fees of $320/month, and monthly insurance of $45.

Variable Landlord Expenses

I'll keep vacancy at 7%, repairs and maintenance at 7%, CapEx at 7%, and management fees at 10%.  These are all a little higher than what I saw Brandon Turner do for a deal in Waco, TX that he analyzed on Instagram.

I also assumed 2% across the board for annual income, property value, and expense growth, and 9% sales expenses when it comes time to divest.

Results

At $90,000, this deal barely cash flows at $8.86/month and a measly 0.38% cash-on-cash return.  We're gonna need to do some serious negotiation to get this deal into shape.

I re-open the report and replace the $90,000 purchase price with $70,000.  All the other numbers I keep the same.  After this adjustment, the deal looks healthier (5.23% Cash-on-Cash, $102.73 cash flow/month), but still not where we'd be excited about it.

One last attempt- bringing the property down to a $50,000 purchase price while still keeping all other estimates the same.  Now we're getting somewhere- $196.61/month and a 12.16% cash-on-cash return.  This is the approximate price point at which I'd be comfortable going in as an investor.