Property Analysis Oct 2008
Towards the end of the month, I’m going to pick a property at random off of Craigslist and analyze it using the methodology in the book and the tools on this site. My approach is that of an out of state investor, looking to expand my empire.
In Tulsa, OK I found this duplex on Craigslist.
Here are the highlights of the ad (in case it was removed).
- Asking Price: $110,000
- Gross Rent: $900 (Could be more)
- Taxes and Insurance: $1300/year
- Current owners live out of state. Want to sell ASAP. Welcome all offers.
First Step: Define my model.
My investment property should provide at least $100/month in cashflow.
Second Step: Use the online Business Modeler to analyze the cashflow.
Using the application, I enter the negotiated price and rent. Since taxes and insurance are grouped into a yearly payment, I’m going to assume $65 per month each. This should equal out to about $1300. Ten percent down ($11,000) financing seems about right.
My first analysis (click to view) shows immediately a negative cashflow of $263 per month. Ouch.
Can we make this property work?
Everything is negotiable. Rerun the application and knock of $20,000 from the asking price. Then we could put down 20%. The ad says that rents could be raised so let’s see what happens with a $50 increase per unit. The seller emailed, saying the tenants pay all utilities. He budgets $25 per month for maintenance.
The second analysis (click to view) shows a positive cashflow of $104. Barely fits my model. This only happens however if three conditions are met.
- $20,000 reduction in the asking price
- $50 increase in rents per tenant
- $18,000 down payment
Question: Do you think you could get all three?
It seems the only way for this to work for an out of state investor is a "pie in the sky" scenario. Don’t become obsessed with trying to make an investment work. It either does or it doesn’t.
Summary
My model tells me this property doesn’t work. If the seller raised the rents to market rate and would accept a lower asking price, I’d still have to come up with a hefty down payment. If I lived locally and could manage the property myself, this would probably work.
Other opportunities await.
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