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Dan Simpson
  • Springfield, MO
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First Potential Deal. Thoughts?

Dan Simpson
  • Springfield, MO
Posted Sep 2 2015, 08:59

I recently came into some cash and am doing what I've always wanted to do: Invest in RE. I've spent years educating myself and feel like I know what I'm doing. I'm pretty analytical and thorough in my though processes.

So here is the first potential deal: Its a 3br 2 ba house in a growing town with me, built in 1977 and has 1,400 SF. Good schools, good family area, etc. And the market is hot right now.

The sellers want out but not being the most sophisticated people in the world, they are advertising it only through a small Facebook group which is how I found it. They are asking 75k, told me the least they'd take is 73k. I had a realtor friend do a CMA for me and it's worth 90 to 95k in this market.

I'm meeting a house inspector at the property today to make sure the bones are good, but from what I've seen of it - inside and outside - the house is in good condition. I won't do much to the house unless something comes up on the inspection except for taking down a wall (non-weight bearing) that someone built in the garage. They made the back part of the garage an office and the front part storage. You can't get a car in there now (one car garage) so the wall has to go.

My exit strategy is to lease option this house. I'm asking minimum 3% down for option consideration at a selling price of 95k and 900 a month rent with 100 of that going towards the down if they buy. After two or possibly 3 years, they must buy or they are out. I've ran ghost ads with these terms and have had some good interest.

My loan will be 15% down, 4.5% interest amortized for 25 years. At 73k I would put about 11k down plus 1500 closing costs and mortgage the rest through a private local lender I'm working with. Taxes are 70 a month and insurance 100 plus or minus a month. So PITI would be around $500 per month.

I would be cash flowing around $400 per month plus if they exercise their option to buy after 2 years, the sales price would be around 90K after taking off their option consideration (3% = $2850) and the monthly credits (24 months@ $100 per month = $2,400). 

I would have at least $75,000 into the house by then so I profit $15,000 from the sale of the house plus the $400 per month cash flow which adds up to $9,600 after two years. That's a net profit of nearly $25,000 after two years. 

Obviously there will be other expenses which may make the total closer to $20k but that's the gist of the numbers. 

Am I missing anything here?

Thanks in advance!

Dan

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