Author Topic: Deal Analysis: Am I doing it right?  (Read 1824 times)

frugally

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Deal Analysis: Am I doing it right?
« on: June 25, 2014, 06:30:43 PM »
Hey Guys,

My wife and I are getting closer to the point where we're willing to go look at properties with the intent of buying.  I'd like to throw out one of the analyses I did on a property to see if there are any holes in my logic.  Feedback is appreciated!

Property Details:
3 bedroom, 2 bathroom, 2 car garage.  Inside is a bit dated and the garage is in rough shape, but overall it looks like a pretty solid property from pictures (obviously I would want to see it).

List Price: $60k
Desired Price: $50k
Closing Costs: $2k (Is this even close?  I honestly have no idea how much of the price the buyer pays in closing typically)
Estimated Needed Repairs: $2.5k (Total shot in the dark until I see it)

Cash all-in: $14.5k (20% down + closing + repairs)

CategoryIncome/(Expense) Monthly
Rent$950 - based on around 50 properties I've seen actually rented in the area.
Mortgage($227) - 5.5% with 20% down
Taxes($100)
Insurance($75)
Vacancy($79.17)
Repairs (10%)/CapEx (5%)($142.50)
Property Management($95)
Total CASHFLOW$231.33

Cash-on-cash return: 19.14%
Cap Rate: 10.09%

Overall, this seems like it's worth more investigation.  Thoughts?

waltworks

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Re: Deal Analysis: Am I doing it right?
« Reply #1 on: June 25, 2014, 07:49:25 PM »
You probably won't get a bank to lend on that small of an amount, but you never know. If you do, they will probably want 25% down since it's not owner occupied.

Otherwise, sounds like you're basically on the right track to me. Don't even bother with a repairs estimate until you see the place, though. That's just silly. It could need a new foundation. Or it could be pristine.

-W

arebelspy

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Re: Deal Analysis: Am I doing it right?
« Reply #2 on: June 25, 2014, 08:39:08 PM »
You probably won't get a bank to lend on that small of an amount, but you never know. If you do, they will probably want 25% down since it's not owner occupied.

It depends.  A small, local bank could do it.  And if OP has < 4 mortgages, they may not need to put down 25%, but they'll probably get the best rates doing so.

I'd probably assume a slightly higher vacancy, and also a little more maintenance, just due to corresponding turnover costs (i.e. more often carpet/paint type costs).

Overall though the numbers look reasonable.  950 rent on 50-60k purchase with <5k rehab is a solid first investment, not a home run, but a solid single or double, which is what you should shoot for, IMO.  Purchase 10 of those over the next 5-10 years and you'll be pretty set.
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frugally

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Re: Deal Analysis: Am I doing it right?
« Reply #3 on: June 25, 2014, 09:30:24 PM »
Overall though the numbers look reasonable.  950 rent on 50-60k purchase with <5k rehab is a solid first investment, not a home run, but a solid single or double, which is what you should shoot for, IMO.  Purchase 10 of those over the next 5-10 years and you'll be pretty set.

My thoughts exactly.  I don't need to hit it out of the park, I'd like to just get my feet wet with the first one.  I'm my mind, I'm assuming my estimate is off by a bit and am hoping for $200/month in cashflow.  It sounds like that's about in line with what you're thinking, arebelspy.

I'll find out more about the financing tomorrow when my wife talks to our loan officer.  They're local, so we're hoping they'll finance a loan that small.

Anyone know if the closing costs are close?  I'll pull up my house's files tomorrow to see if I can find what we paid on our current home.

Thanks a bunch!

arebelspy

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Re: Deal Analysis: Am I doing it right?
« Reply #4 on: June 25, 2014, 11:06:45 PM »
Anyone know if the closing costs are close?  I'll pull up my house's files tomorrow to see if I can find what we paid on our current home.

It heavily depends on your area - what sort of transfer taxes and such you'll have to pay.

It's reasonable enough for now, but I've seen much higher, and I've seen much lower.  Not knowing anything about your area, I wouldn't be surprised if it comes in at half that, as costs usually aren't too bad, but again, it'll depend on your area.  Ask your Realtor for what they think.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.