Investment Analysis: 11204 Chestnut Grove
On Thursday this week, my Meet Up Group and I toured a couple bank owned properties. 11204 Chestnut Grove is a 1bd 1bth condo located in Reston, VA. It was originally listed at $208,000 but has been reduced to $168,000. The following is a quick investment analysis that I use to determine whether or not to an investment would be a good fit in my investment portfolio. Hopefully this can help you in your investment property search!
11204 Chestnut Grove Investment Analysis
Property History:
04/19/2002: Sold for $85,000
06/30/2006: Sold for $220,000
11/17/2015: Listed for $219,000
11/19/2015: Listing withdrawn
02/05/2016: Listed for $208,000 and later reduced to $168,000
List Price: $168,000
Offer Price: $150,000
Condo Fee: $423.83/month
HOA Reston Annual Fee: estimate = $600/year, or $50/month
Estimated Insurance Cost: $300/year: $25/month
Taxes: $1,800 (1.2%): $150/month
Estimated Principal and Interest: assuming 20% down 30 year fixed at 4% interest: $573/month
Cost to renovate: $5,000 ($416/month)
1st Year Financials:
Estimated Monthly Revenue: $1,350
Estimated Monthly Expenses: $1,637.83
Monthly Cash flow (profit): -$288
2nd Year Financials:
Estimated Monthly Revenue: $1,350
Estimated Monthly Expenses: $1,222
Monthly Cash flow: $128
Annual Profit: $1,536
Return on Equity:
Net Operating Income (NOI)/Equity
$1,536/(20% of 150,000 or 30,000) = 5.12%
Estimated Cap Rate:
Annual Revenue-Expenses (not including mortgage)/Acquisition price
Annual Revenue: $1,350*12= $16,200
Annual Expenses not including mortgage: $7,785.96
Profit/NOI: $8,414.04
Acquisition Price: $150,000
Cap Rate: $8,414.04/150,000 = 5.6%
Cap rate takes out the mortgage piece and assumes the property is paid for without financing.
My advice: I like how the property is within walking distance to the metro, however the condo fees kill the return on this investment. $423.83/month for a 1bd1bth is very high. There are other areas in Reston with lower condo fees. For instance, I pay $360/month for a 2bd2bth in Parc Reston. Purchasing a 2bd2bth over a 1bd1bth presents an opportunity to increase cash flow on a monthly basis. Basically match 2 roommates together and write two separate leases. I do this with an investment property I own in Parc Reston and it has increased my revenue by 30% over what I would have received by renting to only one family. In addition, it may be difficult to obtain investment financing depending on the proportion of renter occupied to owner occupied units in the complex. If interested, I’ll dig deeper and look into the condo docs for rental restrictions and to find this proportion of renters to owners. All in all, there are better investment opportunities in Reston. I would pass on this one and continue to look for other opportunities that have cap rates in the 8-10% range.
