All Forum Posts by: Rick L.

@Jason D. Lewis  - Thank you for your comments. Being new to this I am estimating based on numbers I'm seeing from the BP calculators and from other posts I see for these kinds of things, trying to account for all eventualities as a "conservative" estimate hoping that I would have  expenses to cover the unexpected.

I also appreciate your advice about managers and using a handyman as a proxy, paid hourly.

@Account Closed - Definitely not an equity play, just trying to understand how to make these numbers and deals make sense. I know the math is straightforward, I just can't seem to make it work. I think it's because I'm being too conservative with the numbers. Thanks!

Hello BP,

I have two properties and looking to purchase a third. I keep doing the numbers and feel like the numbers are showing bad deals, but it doesn't make sense to me how they can be. 

I know I need to re-read some of the books, etc. but advice will be greatly appreciated! Am I misreading this, and it's actually a good deal? Am I improperly estimating the expense and income increases that's affecting profitability? Looking at the numbers CAPEX and repairs add a huge amount to the monthly expenses.

For instance, this third deal:

Monthly Income: $1,100

Monthly Expenses $1,134.14

Monthly Cashflow: -$34.14

Pro Forma Cap: 5.22%

NOI: $5,215

Total Cash Needed: $11,050

Cash on Cash ROI: -3.71%

Purchase Cap Rate: $5.73

Sale Price: $91,000

Closing Costs: $2,500

Renovation Costs: $4,550 (5%)

TOTAL PROJECT COSTS: $98,050

Down Payment: $4,550 (5%)

Loan Amount: $87,314.5

Loan Points: $864.5 (1%)

Amortized: 30 years

Interest Rate: 5%

P&I: 468.72

Total Cash Needed: $11,050

Property Taxes: $2,184/yr

2% Rule: 1.13%

Initial Equity: $12,685.50

Gross Rent Multiplier: 6.89

Debt Coverage Ratio: 0.93

Expense Increase: 4%/yr

Income Increase: 5%/yr

Property Value Increase: 4%/yr

Cash on Cash ROI: YR1 (-3.71%) YR2 (-0.63%) YR5 (2.64%) YR10 (9.76%) YR15 (31.56%)

Annualized Total Return: YR1 (2.48%) YR2 (22.27%) YR5 (26.37%) YR10 (26.47%) YR15 (22.20%)

Total Profit if sold: YR1 ($274) YR2 ($5,469) YR5 ($11,251) YR10 ($24,701) YR15 ($70,982)

Expenses:

HOA: $82

Insurance: $66

Taxes: $182

MTG: $468.72 (@5%)

TOTAL: $798.72

Vacancy: $110 (10%)

CAPEX: $190/mo (~2.5%)

Repairs & Maint: $380/mo (5%)

TOTAL EXPENSES: $1,478.72

These expenses are different than the $1,134.14 mentioned early on. That number was used and still gave a negative ROI, etc. meaning the current numbers you see just above make the picture even worse.

Please advise, and thanks!

Rick

@Filipe Pereira

@Andrew Morales

Just tagged you as I replied from my phone earlier and wouldn't tag you when I mentioned you in the message.

Drywall 90% done in unit. Just bathroom and back wall left to go. Moving out appliances and other stuff today for taping and painting. Looks like we'll need jam extenders as the company that installed the door ordered the door frame width too small. They came and measured twice??

Drywall in bedroom. Electrical outlets on far wall including for tv box up higher (yet to be installed):

Bedroom tiny walk-in (~4x5):

Speaker Wire and Recessed Lighting. I went through and cut the holes for lights and speakers after photo was taken. There are 4 recessed lights centered in the room with two speakers diagonally from each other in the corners of the room (one closest to photo and one furthest in photo to the left):

Installing bathroom plumbing fixtures $500 from local plumbing company. I supplied fixtures and pex. They supplied the connectors and labor and did the blocking with wood. Fair deal?

Thanks @Alex Dem. We are expecting around $80 - $90 / ft2 for this rehab.

@Andrew Morales - It depends what you want for internet connected devices. If you are just plugging in one tv or computer it's fine. We expect to have a tv in the bedroom, one in main living area, and wanted to ensure gaming consoles or cable boxes etc would have connections. Was it overkill? Maybe, but I read that you will never regret running too much wire, and it's much harder to do it later, so I went for it. Cat5 vs Cat6 is personal preference. I wanted to future proof this condo to the extent I could. My guess is that Cat6 will not be necessary in the life of the condo, but just in case, it's there.

@Filipe Pereira - In the original post I mention termite damage we found, plus it's a basement / garden level unit. Metal studs were used to resist future insect / moisture damage should it occur.

Alex Dem - posting from phone and it didn't tag you so correcting spelling here

@alex dam - We are at about $65 now. We are expecting to be around $80 - $90 per sq ft. I'll update when complete.