Deal Thread -> new acquisition

Analysis of my latest close

A complete walkthrough of the numbers

I wanted to post a thread of a single-family home deal I just closed on.

The timing was a key factor in getting this done closed and in this market, I am very pleased with the transaction.

2+1 bedrooms & 2 full bathrooms, front driveway (rare for this market – most homeowners are used to having a back-alley way), and a fully finished basement (again, super rare for this market).

The house was already finished with very small amounts of value-add.

Onto the numbers:

Purchase price: $257,000

Loan-to-value: 80% financed @ 2.65% 5 year fixed, 30 year amort (10% of down payment was through equity)

Renovations: $2000 total (small improvements that will have significant ROI; 2.5-3x total cost)

Expected rent: $1800-$1850/m + utilities

Note* I ran the numbers at $1600/m which gave me reassurance that deal was solid even with ~$200-$250 less in rent.

I feel pretty comfortable with my assumptions.

Also, market comps show this place could sell for $270k-$275k with no issue but the seller needed it gone ASAP.

This was key to getting the deal closed.

The seller had an issue and I was able to go in there, offer a compelling price, and a quick closing.

A solution!

Note* When I modelled this property, I was more aggressive with my operating expenses such as insurance and taxes etc & a higher vacancy rate.

I do this to again, provide a margin of safety.

I want to evaluate deals objectively.

Returns:

Unlevered:
•Avg. free and clear return: +6.65%
•Unlevered equity multiple: 1.67x

Levered: 10-year holding period plan
•Avg. cash-on-cash return: 14.03%
•Levered IRR: 16.59%
•Levered equity multiple: 3.02x

*Assumption - the property does not appreciate over 10 years; I wrote the exit price as the purchase price

Debt Profile:
•Loan constant: 4.90%
•Debt yield: 7.40%
•Avg. DSCR: 1.56x

*Note: min requirement for DSCR is 1.20x

On avg, I can service my debt 1.56x relative to net operating income.

For every $1.00 in debt I take on, the property provides $1.56 in NOI

Why do I look at loan constant and debt yield?

Loan constant is principal + interest payment (percentage of the cash paid to service debt on an annual basis divided by the total loan amount)

The total cost of the loan for the first year is 4.90%

The property’s debt yields 7.40% (annual NOI divided by debt service)

Therefore, I make the spread between the two by using a loan.

This is a good measure to check along with DSCR.

That is it for the thread – I’ll post pictures once I take possession of the place.

If you have any questions, send me a dm and I would be happy to chat!