Posted by Maxx (TX) on July 16, 2003 at 20:54:36:
I’m not sure if my thinking is right on this path:
If I get the 3% back, I have another $19.5K in pocket to do my next deal. The value of $19.5K right now is worth more in that amount saved in cost/ mortgage.
Not sure if I should declare another $20K extra in income, debating about it. More income I show, more loans I’d be able to qualify for… I may be wrong.
Rental Property - Sect. 8 Deal Analysis… - Posted by Maxx(TX)
Posted by Maxx(TX) on July 16, 2003 at 15:36:58:
Here’s my deal of 10 units of duplexes (3 full, 4 halves). Intentions for Section 8 rentals. All but 1 are rented with lease expiring in Aug '03. And will be renewed.
Section 8 here is about 18mths wait and 5500 families in need of affordable housing. Properties go like hot cakes, max. will be 2 weeks vacancy, if I want to be pick and choose tenants.
Deal for ea unit (half): Built 1985
Asking Price $65,000
Gross Annual Rents $10,800 ($900/mth is lowest, high $1K)
5% Vacancy Rate $540
Gross Operating Income $10,260
Advertising $0
Insurance $1,000
5% Management Fee $540 (my own management co.)
Taxes $1,500
10% Repairs/Reserves $1,080
Total Operating and Fixed Expenses $4,120
NOI $6,140 or $512/mth
Mortgage $412/mth
5% down (7.0% 30yrs)
Cash Flow $100/mth
ROI 36.8%
However, since I’m a realtor I get back 3% commision = $1950. My out of pocket is 2% = $1300.
ROI = $ 100 * 12/$1320 = 90%.
Where did I go wrong in my analysis?
Then my biggest hurdle is not the $$$, but the fear of acquiring over 600K in debt. I know we’ve gone through this before, but can someone nice outside help me overcome this hurdle?
My goal is to take 4 yrs acquire 24 properties for $5000 mthly cashflow. Now with this 10, I’m close to $2500 if I dont factor my own time for 5% Management fee and reserves. Only reserves that I see so far will prob. be $1500/unit on roof and minor misc. in next 4 years.
Re: Rental Property - Sect. 8 Deal Analysis… - Posted by Arthur
Posted by Arthur on July 16, 2003 at 18:49:56:
“ROI 36.8%
However, since I’m a realtor I get back 3% commision = $1950. My out of pocket is 2% = $1300.
ROI = $ 100 * 12/$1320 = 90%.
Where did I go wrong in my analysis?”
Can you explain that line with the ROI on it because it makes no sense to me.
This is how i see it.
Your return on your investment is actually 46.15% P.A
I came to that figure this way:
The cost to you is:
5% deposit of $65k= $3250
Total income from services = 3% commission - 2% costs = 1% = $650
Your outlay is $3250 - $650 = $2600
Your income P.A is $1200 + $540 (management fee) = $1740
100/2600 x 1740 = 66.92% (before tax)
Remember, the commission you get is a one off, you won’t be getting that every year.
Don’t be scared about aquiring $600k of debt. If you scared of getting out loans like that, your in the wrong business. Remember, demand is strong, your investment is fairly safe, and someone else is paying off $600k of debt for you.
Also, out of curisousity, why are you taking 3% commission? If your buying the property to keep, why tell the tax man you made 3% and pay tax on it? Personally, i would ask the seller to deduct the commission from the price. Not only would that mean you wouldn’t have to pay tax on it, but that you could put down a smaller deposit. I’m no tax expert, so don’t quote me on that.
Typo in previous comment - 66.92% not 46.15% - Posted by Arthur
Posted by Arthur on July 16, 2003 at 18:51:51:
“Your return on your investment is actually 46.15% P.A”
Sorry, type, it should have read 66.92%, not 46.15%