Would you do this deal?

[Johnny Aloha]

I've been looking for some additional real estate in markets that are  favorable for investors.  I'll be a long distance investor, which I am fine with.

After lots of potential deals, I've found one that looks pretty good and is not on the MLS.

Asking price: $137k
Deferred maintenance: $0-1000
Fair market value: $175k (I hired a realtor to pull comps for $50)
Rent: $1425/month
Rent range: $1400-1550/month
Annual taxes: $3100
Insurance: $600
Property management: ~13%

Financing: 30yr fixed @ 5%, 20% down payment, assuming $4k in closing fees
All-in cost: $31.4k

Assuming 8% maintenance and 8% vacancy, here are the returns:
cash on cash: 4.5%
including mortgage paydown: 9.5%
including 3% appreciation: 22%

The returns aren't astonishing but I like the ~$30k equity cushion in case I want to sell in the future.

The house is in a very desirable area of Texas with excellent schools and low crime.  The job base is also very strong.

What if I didn't buy it?  Well I would probably put the money in the total stock market index fund.  Or look at cash flowing properties in areas with weaker job markets.

Thanks for any advice!

[freelancerNfulltimer]

Why is the asking price so much lower than the fair market value?

[Johnny Aloha]

It's an off market deal and the seller just wants out.  The asking price is probably her payoff plus the wholesaler fee.  Surprisingly, these actually come up often in certain areas of the country if "wholesalers" are good at marketing.

It would make much more sense for her to hire an agent to sell the house, but some people want out so bad they just push the easy button.

[arebelspy]

It's not a screaming hot deal, but it looks solid, especially because the market is good.

I think it's good for someone who is already ER'd or about to, for solid cash flow.

I may be a bit more aggressive personally if in the acquisition stage, but the chance to lock in a solid deal like that at low 30-year fixed financing is really tempting.

[anniebelle]

Yep, would work for me. I'd buy it - even with zero deposit (which is how I like to buy), the figures look good. In fact, they look better than good.

[Johnny Aloha]

Thanks all. 

The insurance quotes are coming in about double what I anticipated, bringing the returns down pretty low.  I may decide to sell it retail after holding it a year and re-deploy the money into something else.

[arebelspy]

Thanks all. 

The insurance quotes are coming in about double what I anticipated, bringing the returns down pretty low.  I may decide to sell it retail after holding it a year and re-deploy the money into something else.

Yeah I also found insurance and taxes in Texas can suck.

As long as your 1-year figures are correct (estimated rents, vacancy, FMV after 1 year, etc.) that's not a bad plan - the slow flip.

Make sure you run the numbers for if you can't sell in a year and a day and are happy with those.

You do anything with that duplex in Memphis?

[Johnny Aloha]

You do anything with that duplex in Memphis?

No.  There were a number of reasons I was deterred - the PM would not return calls, PM's website had several similiar properties on the same street that were vacant and priced lower than the rental estimates, and I got distracted by a portfolio of properties in Fort Wayne.

But of the recent deals I've looked at this one has my attention the most.

[arebelspy]

You do anything with that duplex in Memphis?

No.  There were a number of reasons I was deterred - the PM would not return calls, PM's website had several similiar properties on the same street that were vacant and priced lower than the rental estimates, and I got distracted by a portfolio of properties in Fort Wayne.

But of the recent deals I've looked at this one has my attention the most.

Ah, that's too bad, when I spoke with the PM he seemed pretty good.  There were a few other PMs also interested in managing it.

I had worked in lower rental estimates because I also thought their numbers may be high based on the rental comps I did.

This Texas one definitely looks like the most solid from a safe investment point of view.  Not a ton of upside, but still likely better than equities, and very low risk.  I'd say the risk to return ratio is quite good.