Deal Analysis - does this look good?

General Real Estate Investing
1

I stumbled across this today and I’m thinking it’s good, what am I missing?

Asking Price $154,500.00
Down Payment @20% $30,900.00
Closing Costs@1.5% $1,854.00
Amt to close $32,754.00
Mortgage Amt $123,600.00

Income
Unit1 $675.00
Unit2 $630.00
Unit3 $655.00
Unit4 $530.00
Total $2,490.00
Gross Rent $29,880.00
P+I (4.5%@30yrs) ($5,562.00) ($463.50)

Annual Expenses
Property Tax $1,240.00
School Tax $1,640.00
Water Tax $820.00
Insurance $1,500.00
HOA $10,152.00
Other $-
Other $-
Other $-
Other $-
Expense Subtotal $15,352.00 $1,279.33

NOI $14,528.00
CAP rate $0.0940
Est Cashflow $20,914.00 $1,742.83

Quick 50%
Quick NOI @ 50% $14,940.00
Quick CAP rate 0.096699029
Quick monthly CF $1,245.00 (before PI)
Quick annual CF $14,940 (before PI)
B/E Years 1.566127898

I don’t have vacancy in there, so there’s that…

i think the price is a bit high to swallow HOA fees of $850/mo, but it’s close… what says the Club?

2

Holy HOA fees Batman!
With just a quick look, here’s what I see…
Your expenses for just taxes, insurance, and HOA fees are almost exactly half your gross monthly rent. As you acknowledged, you haven’t included a vacancy allowance, but there’s also maintenance/repairs, utilities (do you pay for a trash dumpster, common area lighting, water, etc?), legal fees for evictions, costs for tax preparation, lawn care/snow removal as applicable, etc.
50% rule gives you 50% of the rent for all operating expenses, but that’s already taken up here by what you’ve listed.
You’re figuring 4.5% for 30 yrs. Your payments are $626.26 in this scenario. I’m not getting $463.50 for the amount you listed. Even if you get your mortgage amount down to 100k, your payment only drops by $120/mo. Those HOA fees still are a huge obstacle to overcome here.

Rent vs purchase price is good here, but the fees are abnormally large for a deal like this IMO.

3

I did an analysis and assumed the horrid HOA fees included exterior maintenance, repairs and replacements, landscaping, and a portion of the water bill, but not management.

This isn’t the worst deal I’ve ever seen, and even with a 75% overhead expense, it still cash flows after the stated debt service, about $2K/yr, with a 6% coc return.

I question that HOA fees. It’s just absolutely atrocious.

That said, if you could actually operate these at 50% EXP with an NOI of say $18,000, it would at least cash flow. But I’m not sure you can operate this at 50% without donating your time to the cause. What’s your time worth?

Frankly, I think you could make as much money buying a 30k house for cash, that rents for $600/mo, then you could buying these three units with such awful overhead.

With $300/mo cash flow based on a 50% EXP, you could conceivably make about $3,600/yr and earn nearly 12% pre-tax, coc return.

That said, SFH are highly susceptible to hiccups that can easily wipe out the returns for a couple of years, or more. Just ask the guy who had a couple of condensing units stolen, or the guy who rented to a professional deadbeat, and held him up for three months, losing 30% of his annual rent.

SFH’s are higher-risk, sweat-equity deals, especially if you don’t have enough of them to amortize the management and maintenance overhead.

4

thanks, javipa.

as you can see, i don’t post much, but i’ve read a lot of what you, Bluemoon, propertymanager, and several others write.

i’m wanting to get into multi-family, as i have 2 sfh now.

this was, mostly, practice analyzing a deal, but it happens to have some promise. i’m actually considering it, but it’s not a high priority. as you point out, the HOA fee of $850/mo is high, and doesn’t go away - ever. it does, however, cover common maintenance, etc, as this is an apartment complex of individually owned buildings. most of the units are owned by one person, but this particular bldg is owned by an absentee who has had it for about 7 years. the property makes money, and over the long term, it pays for itself, barring major issues with the property or the economy.

if i had the time to find a $30k house that rented for $600, and didn’t require another $10k to make it livable, i’d be on it. i suppose i need to solicit some birddogs in the area. i have a well-paying day job and a family, so my time to hunt deals is limited to what i can do on the mls and through the internet.

i’m gonna keep looking and analyzing.

5

What you mention in your last paragraph is pretty much my situation too but I’ve still built a good portfolio like that.

6

Thanks, justin, for your feedback and clarifying the PI… i was dividing by 12 in the wrong place!