Newbie Needs Some Advice On Cashflow
Hi Guys I am in the process of considering a deal with a local investor as a way to get my feet wet in REI, generate some cashflow and also get some cashback so that I can start doing some rehabbing and flipping. I wanted to run some numbers by you and get some input from the seasoned people out there. Sorry if the post is a little long. First the properties. Now the interest rates aren't for sure yet which could affect the cashflow, it isn't for sure that I will have to pay the mortgage insurance since I am at 90% LTV on 7 of the props and also some of the property taxes are being appealed. We got hit with the 1st assesment in 50 years in the area and taxes went bonkers so I am going to give a worst case and best case scenario
1 Worst $108.92/mo Best 164.92
2 " $57.14/mo " 116.68
3 " $48.85/mo " 108.39
4 " $110.87/mo " 166.00
5 " $106.36/mo " 164.36
6 " $156.49/mo " 173.21
7 " $64.73/mo " 120.73
8 " $69.95/mo " 129.73
Total 723.31 1142.02
I will also get $16,000 cashback for repairs and maintenance at closing. They are paying for the closing costs which seems like a good deal to me. The only thing I am concerned with is am I getting enough cashflow out of these properties?
Thanks for your ideas and input
Joe
I think that some of your properties are a little thin. $57 a month is a little more than what is generally figured as the monthly maintenance costs.
What about deferred maintenance? IS the market appreciating and will it go from $50 to $100 positive cash flow next year?
Best case by your numbers $1144 a month worse case $723
I can't see how this is a good deal... 8 houses (are they near each other?), a lot of maintenance, did you figure in vacancy ?
The only way I could see it was maybe of you rent to owned and thereby got a higher monthly price and a option deposit.
NOt really enought information here
Joe
Your lower end profit margins are pretty scarey to me that dosnt even count for vacancys. I would try to varify or at least come very close to all of my fixed expences and count in the mistakes youll make along the way as well.
I'm not trying to scare you out of the game but if your questioning it then maybes theres a reason why.
Double check your numbers.
ED
What more info can I provide? Also is there a minumum profit guidline for a property? I have been told a 15 to 25% proft is good, is this not true? I don't want to get in over my head
Thanks
Oh also the numbers vary depending on the interest rate, and if I will need to carry mort insurance. As far as appreciation, it is keeping pace with inflation basically about 3-5 %
Mortgage insurance is usually required for all conventional loans where the LTV is greater than 80%. With a 90% LTV, you can count on mortgage insurance wiping out a good chunk of your projected cash flow.
You don't give prices and comps for these properties, so how do you know the asking prices aren't too high for the market. Until you nail down your other fixed recuring costs such as property taxes, property insurance, mortgage insurance, and debt service, you really don't have enough data on hand to make an informed business decision.
Thanks for the reply dave, I am not sure how to get the comps really. I mean I am not using a real estate agent to do the deal so I am not sure who to ask for them.
Try working backwards. Nail down your expense numbers. Then from your Net Operating Income figure out how much debt service you can afford and still meet your cash flow criteria.
Once you know how much debt service you can afford, it is a simple matter to calculate the loan amount for that debt service. Your loan amount plus your down payment (if any) is your maximum purchase price.
It may not matter whether the comps are really higher than the seller's asking price, if the asking price is still too high to generate a positive cash flow.
Thanks for the advice, I decided against the deal actually. I ran some numbers on some multi unit apartments and I can generate over twice the cashflow at less than one half the debt. I really appeciate all your advice out there I am sure I will need it again in the future!
I was actaully all excited about the same kind fo deal, until I ran numbers until my eyes were about to fall out. the 90% ltv with a big check sounds really nice!! But I wasn't willing to do rentals unless I had a pos cashflow.
So Now I am planning on doing a loan 80% LTV I'll still cashout a little on my deals, but I'll also generate a nice pos cashflow too. I have a few others I am looking to do 75% LTV and still cashout on them and make an even better cashflow.
But yes the 90% LTV was so tempting!! I could taste everything I could invest in with all that cash-out money.
But with mortgages for 80% AND 75% LTV, I still get some money to play with, and it will pay me every month. And when I sell I should see that 10% I decided to wait on.
JB
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