Crunching Numbers But Im No Accountant

Comments(7)

• 
  edmeyer10th December, 2004

  Andrew,
  Under the My TCI you will find an icon labeled My Tools. There is a tool called the proformanator that will help you.
  
  You are not giving enough information and you do not show your analysis. What is the amortization period of the loans? What are you assuming for maintenance and repairs? What are you assuming for vacancy? Are there management costs? Are you going to be required to have mortgage insurance?
  
  You can always call an insurance agent and get an estimate on insurance to sharpen up your estimates.
  
  I also am going to suggest that you get familiar with a spreadsheet program such as MS Excel. It even has all of the financial functions for doing proformas. Spreadsheets are also very useful for developing tools for managing your properties.
  
  I hope that this is of some help.
  
  Regards,
  Ed

• 
  Young_Inno_Vative11th December, 2004

  yes your insight is helpful...
  it tells me theres more of the process i need to become familiar with heh
  it is my first time buying, obviously
  i will be looking into ms excel now that you mention it
  
  sorry, i forgot...amortization schedule is 30 years...
  i will be putting away 15% of the positive cash flow for maintenance in a seperate account
  10% vacancy factor to be safe
  mortgage insurance im not sure of...but ill find out...dont know what it is so if i couldget a definition of that, it would be appreciated
  i will probably be doing the management myself so i can learn as quick as possible
  
  thanks for your input
  ~Andrew

• 
  Young_Inno_Vative11th December, 2004

  and i dont get to use the tools...
  i dont really have enough money to get more than the minimum subscription to TCI...hopefully after christmas ill have enough cash to upgrade, but thanks again for your time
  ~Andrew

• 
  grneydgy11th December, 2004

  Well, you are on the right track... but you have to be very careful.
  
  The vacancy factor is typically taken as a percentage of the total monthly income. In my area there is a 3% vacancy factor for single family homes and 6% for multi famil residences. It basically means that your home will be vacant 3% or 6% of the year etc... The vacancy factor covers things such as advertising.
  
  You have to take out maintenance as an expense BEFORE you calculate your cash flow. Depending on the age of a house your maintenance can be anywhere from 3% to 25% of the rental cost. The older the more expensive.
  
  If you are going to have the property professionally managed (HIGHLY RECCOMMENDED) then typically management agencies charge anywhere from 7% to 10% of the rent to handle everything from screening tenants to going to court in eviction proceedings.
  
  Also you need to check for any homeowners association fees, what the water/sewar/garbage bill is, how long the tenants have been there and what their leases are, and ALWAYS have the property inspected before buying.
  
  It doesn't look like you'll have PMI (private mortgage insurance), but if you do make sure to include that as well.
  
  Do your due dillegence to make sure your investment is wise. Check the location of the property as it relates to schools, main roads, grocery etc...
  
  Good luck,
  
  Aaron H

• 
  commercialking11th December, 2004

  Well Andrew a number of points
  
  1) Why is unit #4 rented at 30% higher than the other units? I suspect its because its an "owners unit" which has upgraded finishes which supposedly make it more valuable. In fact mostly this is a trick. The extra $300 per month for this unit is to get the thing to cash-flow at the asking price.
  
  2) You say you are going to convert the units to tenant meters. Have you allowed for the cost of doing this? Have you allowed for the resulting reduction in rent? Last time I checked the weather in NJ was a lot like it is here in Chicago. In a building where the landlord pays heating costs those costs alone can run 10% to 20% of the scheduled income. In your case that would mean another $3,000 to $6,000 per year in expenses. Tenants are not dumb. If you pass these expenses through to them they are going to realize this is a rent increase. Can the current rents stand such an increase?
  
  3) With those changes (reduced the "owners unit" rent to market, and increased operating expenses to 30% not including taxes.) I get approximately $1,100 per year net after debt. If you can reduce operating expenses to 25% of rents NOI increases to $3,200 per year but theres no way this thing is cash flowing $1,400 per month.

• 
  fjfesta11th December, 2004

  Andrew,
  
  Did you think about a partner?

• 
  Young_Inno_Vative11th December, 2004

  first of all thanks for you experience, time, and attention...
  1)those are the #'s given to me on the MLS listing....i didnt take them for granted but use for an idea
  the rentsfor 635$ are actually about 100 below market for this area on the 1 bedroom apartments
  the 2 bedroom apartments go for up to 1000 per month from info gathered from all the mls listings iv seen
  
  converting meters is a cost i did think about although i havent gotten an estimate...
  when converting i would probably decrease the rent just enough so that the offset of not paying these expenses would still project a higher cash flow than before the conversion/lowering of rent
  
  and, yea i have thought about partners but i dont know any ; /
  working with a more seasoned investor, as far as im concerned would be an invaluable learning experience
  yet everything i read tells me not to do this for my first venture...i guesse to protect myself from anyone wanting to take advantage
  but yes i have thought about it...plus i cant get the 100% financing i need yet, without a co-signer...
  i have no income because i just had surgery performed
  i have been pre-approved for 95% financing though..
  working on finding a private lender now
  ~Andrew