Confused About The Numbers
I am making my first multi-family purchase and I am confused about the numbers game to determine if this is a good deal?
There are two Duplexes and a SFR. I am buying out an investor who is leaving the ****Must Reach Freshman Investor status before posting URL's***hey all rent for $500 so 5x500.
The purchase price is $205,000
Interest rate is 4.5% fixed 15 years.
I must make a 20% down.
No Points, .5% origination, title,docs,etc approx 1800.
yearly taxes on all three properties is $1842.
Insurance is $800 for all three a year. Assume a 10% vacancy. and repairs around $2000 a year.
Do I have all the numbers I need? I just can't figure out the math formula's.
Thank you in advance.
Check out the proformameter in the TCI tools
http://www.thecreativeinvestor.com/modules.php?name=Tools&op=ProForma[ Edited by WheelerDealer on Date 02/20/2004 ]
WheelerDealers idea is a good one, however, you can also use an Excel Spreadsheet since it contains a financial calculator to determint monthly payments.
I assumed that this is a fully amortized loan over 15 years. You might want to try alternative financing to improve cash flow since your payments are going to be larger with the fully amortized 15 year loan. Analysis is based on annual numbers.
Initial loan balance = $164,000
Rental Income (w/10% vacancy) $27,000
Tax $ 1,842
Insurance $ 800
Repairs $ 2,000
Net Operating Income $22,358
Loan Payments $15,005
Cash Flow $7,353
Your repairs may be a bit light. I usually calculate at 11% of rental income for SFRs, duplexes and triplexes.
I hope that this is of some help to you.
Regards,
Ed
I chose a 15 year as I am 40 my wife is a physician and we would like to start to either cashout the properies or increase our cashflow for early retirement at 55. A 30year would create more cashflow but it is not our top priority. Is this a smart move?
It looks like you will be getting 3 loans unless some of the units are on the same deed. Why not take out a 30 yr and pay it as a 15 so that you can have some flexibility with cash flow. The Interest rate will only be about 1% higher.
The properties are being financed as one property. The banker we are working with requires a 15year note oninvestment homes. If i wanted a 30 year note I could finance through their mortgage dept. Cashflow up front is nice but I need it more at the back end. I plugged my numbers in as suggested above and it gave me a 1.28 is this what most of you shoot for?
Mike,
There are a number of people who would feel more comfortable if they owned free and clear properties at retirement. I am not one of them. Most of the analysis I have done indicates that leverage early will produce larger cash flows (or net worth ) later than trying to pay everything off or not using leverage at all.
For example, if you had lower monthly payments you might put a second on the property in 5 years and use the money for down payment on more property. With a lower payment on the first you can better afford to have cash flow to cover the new loan.
The other caveat is appreciation rate. I have investments in an area that is appreciating rapidly. One property I bought two years ago has almost doubled in value. I also invest in an area where I don't expect much appreciation but the cash flows are great. Your strategy should include consideration for appreciation. You might look at the Housing Price Index data for your area and build a plan of investment. A spreadsheet is an excellent tool for that (see my article on spread sheet plans). You can play with the numbers and see what you might expect from your investment plan.
I hope this helps and this is just my opinion.
Regards,
Ed[ Edited by edmeyer on Date 02/20/2004 ]
Thank you Ed for your quick replies. The area in which these are will more than likely not go up in value very quickly. At least the numbers I gave don't look like a disaster waiting to happen I guess.
The housing price indices in Georgia look like they are around 4% for the last few years. At that rate in 10 years your properties will be 50% over their current price.
You are certainly not sitting on a disaster waiting to happen. My only point is that I want to help people gain understanding of what is reasonably achievable before pursuing a particular course of action.
Regards,
Ed
I think your offer should be somewhere around $150k-175K
gross income $2500
-500 20% vacancy
net rent $2000
-700 35% expenses
NOI $1300x12 = 15600
$15600/ .09 cap rate = prop. value $173333
adjust cap rate (8%-12%) by location,
8 for better neighborhoods, increase as neighborhood quality declines. 12% for low income, sec 8, low vacancy areas.
This is an absolute opinion please don't be offended. Just passing the process I have arrived at.
Quote:
On 2004-02-20 18:38, Mikewatts1 wrote:
I am making my first multi-family purchase and I am confused about the numbers game to determine if this is a good deal?
There are two Duplexes and a SFR. I am buying out an investor who is leaving the ****Must Reach Freshman Investor status before posting URL's***hey all rent for $500 so 5x500.
The purchase price is $205,000
Interest rate is 4.5% fixed 15 years.
I must make a 20% down.
No Points, .5% origination, title,docs,etc approx 1800.
yearly taxes on all three properties is $1842.
Insurance is $800 for all three a year. Assume a 10% vacancy. and repairs around $2000 a year.
Do I have all the numbers I need? I just can't figure out the math formula's.
<IMG SRC="images/forum/smilies/icon_confused.gif">
Thank you in advance.
Your monthly payment is $1250 a month. That makes it good. Can you afford the downpayment ? It is a good deal if you can. I hope it does not take all your investment fund.
Pretty hard to use a 10% vac factor on such a small amount of units. I suggest you check prior year rental receipts and adjust the vacancy factor accordingly.
May I further suggest that you impound all of your rents for the first six months to create a small fund for those strange times when something really unusual occurs. Very nice Grind Out. Could be the lynch pin in your investment plan.
Cheers Lucius