How to Analyze Single Family Investment Properties

 

Its always advisable to look before you leap into any pool, but how can you tell what lies underneath?

In this post from TRE Homes, Matt Teifke the Broker and lead investment counselor helps break down a typical prospective single Family investment property for you to see what lies beneath the surface.

 

Austin is a great real estate market! Walk into any coffee shop and you’ll hear the phrase “the Austin market is hot!” I grew up in this city and this is a great place to live. Jobs are coming here every day! However, Austin is an extremely competitive market and it’s a challenge to find investment properties that provide cash flow. I’m going to run you through an analysis of a property that was listed on the MLS.

172 Dandelion Loop, Kyle Texas:

First, I always look at the sales price, yearly taxes, insurance, and condition of the property.

These numbers will be critical in analyzing the investment.

1. Sales Price $198,000

2. ($3,780) yearly taxes

3. Quoted from my insurance agent $980

4. Good condition.

Second, we need to determine any additional costs, the expected rent, and what our payment will be based on the financing that we will utilize.

1. HOA Fee is $52/month

2. Expected rent $1700

3. Monthly Payment based on a 30 year term, 4% interest and 20% down payment = $756.23

Take the monthly payment and add the HOA fee ($52) and 1/12 of the total insurance($81.66) and property taxes ($315). Your total payment will come out to $1,204.86. 

At first glance, this property looks good! The property brings in $1700 a month minus PITI (Principal, Interest, Taxes, Insurance) $1204.86 = $496 cash flow. However, we can’t forget that you will have expenses (property dependent, ie. maintenance), leasing costs (70%) and a management fee (7 to 8 %).

This property would most likely break even on a monthly basis. Investors have to determine their strategy as a big picture before diving into individual properties. For some people, this is a great deal because this house brings in enough rent to cover the PITI while the property potentially appreciates and you can receive tax benefits from the depreciation. Others are solely focused on cash flow and this wouldn’t put money in your pocket every month.

We are more than happy to help analyze deals or run numbers. Please don’t hesitate to reach out. Best of luck out there! – Matt Teifke, Broker

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