Author Topic: Are these numbers correct? Evaluating Property  (Read 1518 times)

MrSal

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Are these numbers correct? Evaluating Property
« on: September 27, 2016, 12:08:44 PM »
I am under the process of evaluating a few properties lately for my first purchase here in the US of A.

Unlike where I lived, it seems here we have to incorporate more taxes and maintenace provisions and mostly vacancies as well that where I am from. Maintenance where I am from is usually not much accounted for especially since everything is concrete and bricks or roof tiles, there arent that many expensive items to foresee. Also taxes are low (usually less 100 usd per year) and vacancies I dont think for the past 15 years we ever had in my family more than 1 week turnover - we live in a high demand area.

Anyhow, I am trying to adventure myself here in the US. I want to first go local close to where I currently live which is in Central PA.

I have so far 2 properties that raised my interest.

The first one, is a half double - I would be only purchasing one of the units, and is in a good school district. The neighboorhood block I would say is not the prettiest in town nor the better one but is not a shady neighboorhood at all. I would put it in "normal" category. It already has a long term tenant - I was able to look and the tenant has been there for the past 4-5 years always with rent on time.

My question is why would hte owner be selling but there can be a plethora of reasons. With a quick Facebook search, I was able to see the person lives on the West Coast so it may be a reason why they are selling - more investigation needs to be done.

If I had done my math right, and considering all variables account for (taxes, insurance, maintenance, property manager and so forth - please let me know if I havent been conservative at all and numbers need revised) the property does cash flow.


On the other spectrum I have a 2 unit duplex which would bring 1000 USD gross, and according to calculations it also cash flows, however the neighboorhood is not as nice and is in a town about 10 miles away which is not as nice as mine.

The migration flux is stable for the past years (population has been stable) and there are not a lot of super high paying jobs around. Owning is cheap aroound (a 1500 sq ft house costs around 170k or so in a nice area).

Both areas are reaping benefits of a plant conversion from Coal to Natural Gas. It started recently so a plant that was shut down the past decade has been reactivated into NG plant and a lot of activity has been going around from the Central PA regions of shale gas.

Considering this, and if you had to opt between the two what do you think it seems to be a better option, considering the 2nd option is in whats considered a rougher town. Also worth considering, the first property has hit the market around 1-2 weeks while the 2nd property has been in the market for 1 year which begs the question again what may be wrong with it. I need to go to the properties, which will happen this week.

Are my calcs OK?

« Last Edit: September 27, 2016, 12:10:50 PM by MrSal »

ShoulderThingThatGoesUp

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Re: Are these numbers correct? Evaluating Property
« Reply #1 on: September 27, 2016, 12:22:49 PM »
Rougher town probably means more beating up on your property. What is the age of these units?

CareCPA

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Re: Are these numbers correct? Evaluating Property
« Reply #2 on: September 27, 2016, 12:30:52 PM »
Area will also affect your vacancy rates.
Also, I'm not sure what kind of landscaping you're budgeting at $10 a month? If you are doing mowing/snow removal yourself, your costs will be lower. If you're hiring it out, they'll be higher. I don't know any mowers that will show up for that small of an amount unless you're paying the neighbor kid to do it. You can also generally write into your leases that snow/yard maintenance is the tenant's responsibility.

ETA: Also look at your property management expense. The PM I have in Harrisburg charges first-month's rent for tenant placement, and then 8% a month for ongoing management (rent collection, etc). I don't really feel I'm getting what I pay for, but there are no others that I can find in the city that seem reliable, and I moved a couple hours up north. If the houses were in a more stable area, I could manage them from a distance with just a handyman, but the number of tenant-landlord complaints file in the past two years would have made that very difficult. In hindsight, I would opt for lower returns in a more stable area.
« Last Edit: September 27, 2016, 12:40:25 PM by FrugalGrad »

MrSal

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Re: Are these numbers correct? Evaluating Property
« Reply #3 on: September 27, 2016, 12:46:19 PM »
Rougher town probably means more beating up on your property. What is the age of these units?
From 1950's

In both units there are tenants in place. Long term so far.

I am more inclined to the one closer to me which is the nicer area. Its about 5 blocks away from School District... has playground in front along with other services nearby. I still have to check the 2 unit property but so far have been inclined to the nicer area one.

Also, I drove around town last night and drove through the first house, and it is all decorated for Halloween. With fake spider webs, ghosts, pumpkins and such. It shows pride and sense of community in my perspective. Agree?

MrSal

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Re: Are these numbers correct? Evaluating Property
« Reply #4 on: September 27, 2016, 12:52:28 PM »
Regarding utilities and landscaping... the current lease states the tenant pays for those, however in order to be conservative I just kept them anyhow.

ShoulderThingThatGoesUp

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Re: Are these numbers correct? Evaluating Property
« Reply #5 on: September 29, 2016, 03:40:04 AM »
Agreed that all the Halloween decorations are a good indication of sense of pride. My lower-middle-class town goes all out for Halloween and it's great.