Can't Seem To Purchase My First Property.
We were contemplating a property and checked out its numbers recently. The Annual Gross Rental Income= 73200. and with a 25% vacancy rate (common here) the Effective Gross Income = 54900. .
Annual Operating Expenses are :
Taxes= 13,860.
Insurance= 1,800.
H2O =700
Garbage= 360
Electric= 2,750.
Landscape (grass, snow)= 800
Management @ 6% =4,392.
Budget for Maintenance/Replacements @10% =7,000
TOTAL OPER EXP = 31,662.
This leaves me with 23,238 NOI… 1936.50 a month…. BEFORE DEBT SERVICE.
Asking price is 660,000, but even if we (by a miracle) purchased it for 500,000 I don’t see how I could afford a mortgage with only that.
These are only reflective of 11months (except the insurance), so the end would even be less NOI.
I have three questions.
First, what is the opinion of these numbers and my calculations?
Second, should I just skip this and instead of putting all my “eggs in this one basket” go purchase a few four-unit buildings?
Lastly, in my calculating I realized how dependent I am on those “on-line” mortgage calculators. You know, the ones that tell you how much you’ll pay monthly in for P/I based on the term length, percentage and amount borrowed. Well, I was told that it is better for me, and the only option given by the majority of lenders, to use a 5/1 ARM.
When doing my cash flow calculations, I was stumped how to figure out the monthly payment for a 5/1 ARM. I couldn’t find any calculators on line that I understood. Can someone tell me how to figure this out?
thanks!
I am in no way a commercial investor, hell, I haven't even purchased my first residential but I can tell you that based on your numbers you are looking at deal that will not work unless you put up a lot and I mean a lot of your own money. Just my opinion.
Jim
I almost gagged when I saw the management fee. That eats up all the profit. There is no shortcut to making bucks in R.E. investing, I have found...been doing it for 20+ years. Self management, doing some of the repairs, anything hands-on is the way to go, especially at the beginning of your career.
I say this deal sounds like a loser, unless there is a huge upside in rental income.