Gross Potential Rent ..... $ 20,400If I can get the owner to take back some or all of the financing, I should be able to CF positive about $150-200/mo. on it, but that's a big "if". I may also be able to buy the additional house and lower the overall price in the package deal (another big "if"). I sent the agent an email asking her several questions regarding the properties, so we'll see what happens. If it requires me to put down money and get conventional financing, I doubt I would break even each month.
Vacancy Loss (2mos) ...... $ 3,400
Gross Potential Income: $ 17,000
Management (10%) ......... $ 2,040
Maintenance (5%) ......... $ 1,020
Insurance ................ $ 1,278
Property Taxes ........... $ 1,420
Other (3%) ............... $ 612
Gross Operating Expenses: $ 6,370
Net Operating Income ..... $ 10,630
Edit: Found another deal in about the same location as the one above, but it's just an SFR. It says the owner will consider any offer, and says the property will be sold in "as-is" condition. I emailed the agent to see why they're selling, if they are interested in providing financing, if there was any major things wrong with it, could I have more pictures of the inside and out, etc. We'll see.
5 comments:
Steve,
I like the way you broke down your numbers to reflect the true numbers of the deal..& the fact that you didnt leave out realistic numbers like vacancy/maintenance/eviction allowances.. Contrast that with other "experienced investors" that ive read about that fudge those numbers because the seller said so.
Keep posting.
Regards
starsky - Thanks! There's actually an investor on reiclub.com that says to facot in 45-50% gross rent for all your expenses (excluding debt service), which may be the ultimate conservative position. His theory makes sense, tho, in that tenants often damage the place, you may end up with court costs, and other "unforeseen" expenses that are normally not expensed upfront, so it's best to account for all those things. I like his theory, but I think you can miss out on a lot of good deals using it, too.
Steve, explain this statement"but I think you can miss out on a lot of good deals using it, too."
How would one be missing out on good deals? Say you got a place with $140 cashflow & your perfect tenant Loses their job(like the friend you wrote about), stops paying rent & then gets pissed that you have to evict them, mess up the place & squats until you have the sheriff physically remove them? Add it up & I bet that it will take over a year of $140 a month cashflow to recoup those costs.. Thats the real world life events that happen to people everyday regardless of how well you screen...
Keep breaking deals down like your doing using real numbers & you'll be better off.
Starsky - Well, if that's the case, why not 55%, 60%, 70%, or even 90% gross rent for expenses? There has to be a cut-off somewhere, and I just think 45-50% may be a little too conservative. Will people damage your properties, will you have to pay court costs associated with bad tenants, and so on? Sure - no doubt. Will it happen with every single one of your properties and with every single tenant you get? Unless you consistantly let bad tenants through your screening process, I doubt it.
I'm not saying the person's criteria are ridiculous - just a little too conservative for me. I think if I found a deal that had 43% or 44% gross rents in expense, I wouldn't just pass it up becuase it wasn't 45-50%.
Steve,
The point is if you run your rentals as a business, then one bad tenant can set you back, eat up your reserves etc.. & with the you style of investing(seller financing) the purchase price has to be spot on & expenses ran %40 percent or higher to truly cashflow. In the example given, you witnessed 1 bad lease tenent wipes out 11/2 yr of good tenant lease. Add it up.. The gent on reiclub speaks the truth, however expenses in my area run around 30-40percent
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