Newbies Beware!!!!
The ProFormanator will give you a shocking wake up call.
The following numbers on the surface appear like a slam dunk. See the financial disaster that unfolds...We're talkin' LESS THAN HALF PRICE ACQUISITION WITH NO CLOSING COSTS OR REPAIR COSTS EVEN FIGURED!!!!!!!!!
Appraisal or FMV $105,000.00
Purchase Price $50,000.00
Repair Costs +$0.00
Closing Costs +$0.00
Amount Financed $50,000.00
Mortgage Details
Principle (Amount Financed) $50,000.00
Interest 8%
Years Amortized 30
Monthly Payment $375.63
Debt Service $4,507.60
Cash Flow Details
Gross Annual Income $10,800
Annual Property Taxes -$2,300
Hazard Insurance -$850
Advertising -$100
Management Fees -$1,080
Reserves -$540
Vacancy Rate -$540 (5.00%)
Maintenance Rate -$540 (5.00%)
Net Operating Income $4,850
Net Operating Income $4,850.00 / Debt Service $4,507.60
ProFormanator Says:
"You might need to pass on this one. This property doesn't really have enough cushion to cover the debt."
What this tells me is that you need to acquire property at absolute fire sale/highway robbery rates and cut corners at every turn as far as any repairs to make money
One that would make me lean towards the deal:
1) An immediate 50+K equity in the property that I could draw upon for future properties.
Also, what is the appreciation like in the area?
It isn't that bad of a deal...
Q
Are you sure about the property taxes?
They seem a little high
I also noticed that the monthly payment seems to be based on an 8.25% interest rate, rather than an 8% rate. Not a big deal, but a little bit of difference.
Chuck,
Since you are not interested in doing that deal. I am. Please PM me the details.
Thanks
Guys I think he was saying that the program is wrong and to be cautious about what it says.
Chuck,
Keep in mind that the proformanator is both still in beta and is only for determining the investment value of a rental. It shouldn't be used for other investing methods.
That said, I ran the same numbers thru, with some adjustments and here's what I got:
The only figures that were changed were annual property tax: $550 on $100K home is average for here, and hazard insurance. I usually pay around $300 per $100K coverage, but listed this as $500.
Everything else remaining the same, I got a debt coverage report of 1.54 and a "This Rocks! Good job at finding a money maker."
The only problem that I saw with the program is that it figured on a 8.25% interest (which was correctly entered) but only listed it as an 8% interest rate on the report, though the monthly payment was correctly reported (for 8.25%).
Like any program, this is only as good as the numbers that the user puts into it. Some other points to consider, too. Manage this property yourself and pocket another $1K a year. An 8% interest rate is currently very high, especially for a 50% LTV property. 6% is more common for fixed, and it could go as low as 4% or better for an ARM.
Roger[ Edited by rajwarrior on Date 01/26/2004 ]
Thanx All for the replies
It's nice of you, Roger, to break it all down like that. Obviously, the proformanator still needs some fine-tuning. It does give you lots of examples of what to look at when screening a property. But obviously, a property with an instant 50K equity would be hard for any one of us to pass on. The program really only account for the monthly income versus expenses, not the equity.
Property taxes in Texas are abnormally high. It makes up for our lack of state tax. There isn't anything wrong with our mock property, I would buy it any day of the week. You just need to charge a little more rent. I stick to the 1% rule, so you could pick up an extra $150/month. That is a extra $1800/year!
-Chris
[addsig]