I Need A Newbie Buying Checklist, What To Analyze Before Buying
What things do I need to look at before I make a purchase on mult-family or any rental property?
are there different numbers to look at between multi family and SFR?
One last question, can you point me towards an article that explains ROI, Cap Rates...etc.?
Thanks in advance!
My wife and I just went to the Carleton Sheets seminars. We paid for them, but the pudding is that we were refereed by our would-be investors. The web-based software that we got from that seminar allows us to check our numbers in VERY little time, and it seems to be VERY exact!
For any purchase you clearly need to check out income and expenses. When you check out income, you want to verify it from Schedule E and accounting records. You should pay attention to vacancies and deduct the average from the scheduled income
For expenses, you want to focus on and verify the ones that have largest impact on cash flow. For example, I am rarely concerned about legal fees or advertising costs. Certainly, you need to look at loan service, taxes, insurance, maintenance and management.
As to the difference between SFRs and multis-- my observation is that the maintenance costs have large variability and are a larger percent of scheduled income with multi-family units than with SFRs. It is very easy to underestimate maintenance costs. Another factor that really effects these costs is turnover rate. If a unit gets beat up pretty badly, these costs can be quite high.
I hope this is of some help.
-Ed
Number crunching formula:
http://www.thecreativeinvestor.com/commercial/modules.php?name=Articles&file=article&articleid=467
Dave T has a pretty good cash flow analysis spreadsheet that you can download from another site.
www
REI
club
com/forms/cashflowanalysis.xls
[ Edited by NewKidInTown3 on Date 01/31/2006 ]