So You Want to Buy Investment Properties - Evaluate with me
So You Want to Buy Investment Properties - The Property - Part II
So You Want to Buy Investment Properties - Lending - Part III
So You Want to Buy Investment Properties - Evaluating Financing Optioins - Part IIII
So You Want to Buy Investment Properties - Operating Expenses - Part V
Below you will see three different evaluations of expenses based on actual financing options with 20% down. I will introduce each one seperatetly an explain as needed. The first five phases of the project are linked above. Don't hesitate to start at the beginning.
The property being evaluated is a Gettysburg, PA rental property.
The below is the result if I paid full price for the property. This includes all bills being paid by the landlord. These bills are also rather conservative because as far as I know the building has not been fully occupied in the last 12 months. This means that the financial strain on the lardlord cause be 30-40% higher. You will see that at it's current price this building would not be an intelligent purchase. Now I greatly reduced the expected rental income from the commercial storefront because there is a large number of commercial vacancies in Gettysburg. To make this spot more appealing I assumed it would rent for 800/mo. The current owner believes he/she can rent it for 1500/mo which I find unrealistic. This would greatly affect my results.
As you can see at the end of the year the landlord would end up spending 4043 dollars to keep the property afloat. Our goal is to make money not spend money.
The next situation is the same property, same price, but the tenants will pay all utilities. This situation is much better than the above.
This situation basically represents a break even point for year number one. We are going to go much deeper into analyzing this property so follow the blog. I'll be doing a few projections with more accurate after tax figures. As you can see above this situation is highlighting before tax cash flow. We need after tax.
The goal of the project was to create a 15% return. My calculations actually ended up coming up with 16.44% Internal Rate of Return. I'll get into this in more detail a few blogs from now. The following situation is obviously the most ideal but it means that I have to seperate utilities and get the property for 200,000. This would have a great chance to make money due to the lower figure I established for the commercial storefront. When the commercial rental market returns to Gettysburg the property would have fantastic returns. A purchase now would be risky given the vacancy of the commercial unit and one of the apartments.
You will notice a much better before tax income than the first two examples. The important thing about rental properties is buying them on your terms. As an investor you want to win by buying for the right price in the beginning. Most real estate investors will tell you that you make your money when your purcahse not when you sell.
Stay tuned for more evaluation. There will be 3-4 more blogs to go. The project is complete but I don't want to give the readers everything at once.
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