Rental Property Investment Analysis
The Final Real Estate Property Analysis for Feb. 2011
Hello there! Yes, it’s been a while. Truth be told: we’ve been extensively testing version 2.0 of our new Real Estate Investing application for the iPhone. In a nutshell: wow! This is going to be the last post written for BuyThatDuplex. But the posts won’t stop! We’re moving our operation over to Facebook. If you’d [...]
Hello there! Yes, it’s been a while. Truth be told: we’ve been extensively testing version 2.0 of our new Real Estate Investing application for the iPhone.
In a nutshell: wow!
This is going to be the last post written for BuyThatDuplex. But the posts won’t stop! We’re moving our operation over to Facebook. If you’d like to continue following along, please click here and “Like” our new page called “NestVest”. The Facebook page has all kinds of goodies. We’re going to be uploading a new series of really short videos, including the continued “Property Analysis” series.
Also the new NestVest website showcases our newest Real Estate Investing application for the iPhone.
For this final analysis, I’ll be using NestVest Premium which should be released into the Apple App store around the beginning of March.
Within NestVest Premium I searched the MLS for potential properties in Houston, Texas. My range was anything below $150,000 with five or more bedrooms. Lo and behold, I found a five-unit apartment building for $140,000. The screen shots below show you the search results, the property I picked and finally the web page where the listing came from.
 MLS Search Results |
 Specific Property Information |
 Original MLS Listing |
My instincts tell me that a five-unit building with $140,000 price tag stands a good chance of having positive cashflow. Within NestVest, I save the property to my Favorites so I can analyze it properly.
We don’t know what the monthly rental income is. The MLS didn’t say. But NestVest queries Rentometer.com, which uses the zipcode, number of units and the number of bedrooms per unit to calculate what the potential rent might be. We know from the listing that this is a 5 unit building with five bedrooms so that’s essentially five one-bedroom apartments. Rentometer.com projects the rental income in this area is $750 per unit or $3,750 in total.
When we return to the main screen, the Preliminary Cashflow is $1,371 per month. Um . . . that’s pretty good.
 Rentometer Projection |
 Preliminary Cashflow Analysis |
 Projected Expenses |
The Expenses are all based on estimates. Within NestVest Premium I can search Zillow.com to find out what the current interest rates are and also the monthly insurance payment and monthly property taxes for that particular zip code. I push the button and Zillow.com returns the values I’m looking for. When I go back to the Property Info screen, I can see the new estimated monthly cashflow is $1,546/month.
The interest rate seems low to me. For a non-owner occupied building, I can only assume the lender will charge more for the interest rate. Also because this is a Five-unit building, some lenders get funny about their lending with more than four units. Beware of that. I’m going to change the interest rate to 8% just to be safe. Now I can see the new cashflow. is $1,318/month. Cap Rate is over 18% and the Cash on Cash ROI is eleventy gabillion percent. Huge.
 Zillow Expense Estimates |
 Cashflow Analysis and Projections |
Since the units haven’t disappeared from the MLS, I can only assume the adage “To good to be true” comes to mind. If the units truly were the “deal of the century” then someone would have snatched them up by now. Are there catastrophic problems with the building? Did it fail a building inspection and requires major overhaul? Divorce?
Good questions to ask and definitely worth checking on. The original MLS listing did not mention anything about the property being sold “as-is”. When a property is sold “as-is”, it usually means the property has a major problem and the owner doesn’t want to pay for it. They want to dump the property onto someone else for a reduced price.
As far as the ‘on paper’ aspect, the property appears solid.
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Happy Investing!
Rental Property Investment Analysis February 2010
Today’s rental property investment analysis is this 9-Unit property in Indianapolis, IN. Here are the stats: – Asking Price: $130,000 – 9 Units (7 apartments, 2 business) – 1 apartment rented ($500/month) – Two business suites rented ($1500/month) – Potential rental income: $5,150 per month The analysis was performed on a new iPhone application for [...]
Today’s rental property investment analysis is this 9-Unit property in Indianapolis, IN. Here are the stats:
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- Asking Price: $130,000
- 9 Units (7 apartments, 2 business)
- 1 apartment rented ($500/month)
- Two business suites rented ($1500/month)
- Potential rental income: $5,150 per month
The analysis was performed on a new iPhone application for real estate investors called NestVest. It’s in advanced-beta right now but from what we’ve seen it’s really nice. You can use the Business Modeler to do the analysis.
Assumptions:
Assume the worst: the building needs a lot of repairs and only the 3 occupied units can only be rented at this time. When our rehab crewstarts, they will be able to rehab the empty units. During a six month rehab project, our rental income is $2000/month.
Analysis:
By doing a quick analysis, we can see that even with only 3 units occupied we still meet all our expenses.
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With the numbers provided, we’re looking at $354/month in positive cash flow with only 3 units rented.
How this might work:
The property requires some TLC. How much?. Assume the worst; then we could figure out if this would still be worth it.
- Entire plumbing/electrical needs updating.
- New Drywall, New Flooring
- New Fixtures/Appliances (bathroom and kitchen)
The dollar amount now depends on what path you wish to take. Do you renovate the entire investment all at once? Or one unit at a time?
Let’s start with the all-at-once renovation. Based on the assumptions above, it would not be unreasonable to think the renovations would cost around $50,000 ($10,000 per unit). Even though the ad says the renovation costs will be low due to the low square footage of each apartment, plan for the worst.
With the renovations at $50,000 and a potential increase of cashflow of an additional $3,000 then the ROI on that investment would be 72%. After finishing the renovations, eighteen months later and the renovations will pay for themselves.
If an investor did have $130,000 to buy the property, would they have an additional $50,000 to renovate all at once? With contractors having a habit of walking off the job, the owner could find themselves with a building that isn’t livable let alone rentable.
One unit at a time might be more feasible. The cost to renovate one unit is much lower than renovating an entire building. This has the benefit of being able to cherry-pick which apartment to renovate first. Go for the easiest, fastest renovation. Once the renovation on the unit is done, rent it out. Gain that extra $500/month and start rehabbing the second easiest unit. Rinse, Repeat.
Summary:
This rental property investment analysis makes sense on paper. It is just an issue of finding out all the hidden problems and determining the extent of the repairs that are required. Did the previous owner let the property go bad? Is it the casualty of a divorce or lawsuit? A very intense, thorough inspection would be required.
The biggest obstacle is financing the deal. The seller seems intent on cash-only. This would block 90% of potential buyers, even if they were experienced. Also one big reason for buying real estate is for the write-offs come tax time. Paying cash for a property, unless it’s a loan, provides none of the real benefit of real estate. Maybe after sitting on the market for a while, the seller might relent and accept financing terms as part of the deal.
Property Analysis February 2009
Today we’ll take a trip to Schenectady, New York and take a look at a 4-plex for sale. In case the listing is missing, let’s sum it up. Asking Price: $219,900 Rental: $600 per unit ($2400 total) Utilities: Included with Rent Fully Rented Just by looking at the preliminary numbers, I was excited to have [...]
Today we’ll take a trip to Schenectady, New York and take a look at a 4-plex for sale.
In case the listing is missing, let’s sum it up.
- Asking Price: $219,900
- Rental: $600 per unit ($2400 total)
- Utilities: Included with Rent
- Fully Rented
Just by looking at the preliminary numbers, I was excited to have found a property that would cashflow. With a mortgage payment of about $1300, the other expenses would be easily taken care of by the remaining $1100.
Then I noticed the taxes were listed. $7,148. This breaks down to $545 per month.
An expense of $545 per month will kill this as a potential investment property. Running the numbers in the Business Modeler verifies this (Scenario 1).
The only way this property would make sense is if the sellers came down $50,000 on the asking price. Is that realistic? One could argue that it never hurts to try. But $219,900 is not out of line with other properties for sale in the same area. From there, it’s a question of motivation by the sellers. Just how bad do they want to get rid of this property?
The big elephant in the room is the taxes. The $545/month lead weight sinks this deal.
Conclusion:
This property was dismissed not because of poor construction or bad neighborhoods. But rather the deal doesn’t work because taxes moved it out of the possibility category.
Skip this one. Time to hunt for another.
Property Analysis November 2008
** Buy That Duplex Pro has been released and is available in iTunes** November’s analysis is being posted a week early. Next week I’ll be off, eating delicious turkey and stuffing for Thanksgiving. Today I venture into Southern California. A condo is listed at $133,000. In case the ad is missing by the time this goes to [...]
** Buy That Duplex Pro has been released and is available in iTunes**
November’s analysis is being posted a week early. Next week I’ll be off, eating delicious turkey and stuffing for Thanksgiving.
Today I venture into Southern California. A condo is listed at $133,000. In case the ad is missing by the time this goes to print, here are the stats.
- An REO property in Long Beach, California
- Three bedroom, 1 bath at 994 square feet
- Covered, Gated Parking
To use the business modeler, we need the asking price and rent. No rent is listed so I’m going to use rentometer.com. For this neighborhood, RentoMeter.com tells me that $2000/month is a decent price for rent. Yes, it’s true I could go higher. But I want to be conservative with my estimates.
Using the business modeler, Scenario 1 shows a cashflow of $248/month.
A few comments about Scenario 1:
- This doesn’t include HOA fees.
- Room for negotiation
A real estate agent I know also runs a Property Management (PM) company in Long Beach. He says that in Long Beach PM companies charge 5%. Not 10%.
I’ll rerun the modeler using the following changes:
- Asking Price reduced to $123,000
- Property Management at 7% (figure conservative)
- Other increased to 20% (for HOA fees).
Scenario 2 shows a cashflow of $182 per month.
Is this the best investment vehicle for our money?
Just because we’ve achieved positive cashflow doesn’t mean that real estate is the best investing vehicle. If you put $50,000 into a property and only get $100/month in cashflow, that is an ROI (Return on Investment) of 2.4%. You would be better off putting the $50,000 into a tax free municipal bond at 5% which would provide $208/month.
Verifying the cashflow from a bond or money market account is straight forward. Use the down-payment of $12,300 at 5% and divide by 12 months. Cashflow is $51.25 per month. Significantly less than our $182 per month.
Another quick method: figure out the return on this property and compare it to the bond’s ROI. Take the monthly cashflow and multiply by 12 months then divide by the initial investment. $182/month x 12 months divided by $12,300 produces a return of 17.7%.
Looks good.
Pitfalls
This property works if:
- Asking price is reduced
- Rent is $2000/month
- HOA fees are about $200.
- The condition of the condo doesn’t require major renovations.
It’s very realistic the agent would accept a $10,000 drop in the price. The property has already been written off the banks’ books. Negotiation may not be difficult.
Rent is contingent on neighborhood. If the neighborhood isn’t desirable, neither will the rent.
HOA fees were assumed at $200/month. Is this accurate?.
True the property is REO. But since properties must be livable in order to be financed, we can assume the basics of the condo are in decent shape: such as electricity and plumbing. Will the carpet have to be replaced? Are all the appliances present and accounted for?
Summary
With the cashflow at $182/month and an ROI of 17.7%, the property warrants further investigation.
