After the first year, the investor will have the following $9,600(Rental Income - easy number kept rent the same) - $6939.48 (Operating Expenses including PITI, 10% PM Fee, 4% Vacancy and Maintenance) = NOI $2,660.52 per year positive cash flow.
Uh, that's not how you do the math.
P&I are not operating expenses. The "50% rule" (read the sticky threads in the Rental Property forum) is a way to estimate operating expenses (in the IRS meaning), vacancy (i.e., rent not collected) and capital items for multiple properties over the long term. While this has been disputed many times, anytime anyone has produced data, its been substantiated. Certainly, over any particular year for any particular property, the actuals may vary significantly from this estimate.
So, a better estimate of the reality of this property would be gross scheduled income of $9600. Estimated vacancy, operating expenses and capital of $4800. That leaves NOI of $4800. P&I per your estimate of $3735. I'd agree many investors should be able get a loan for a bit under 6% right now, though more comments on this below. That leaves $1065 a year in pre tax cash flow. After tax cash flow is highly dependent on the investor's particular situation and isn't a useful basis for comparison.
Now, if an investor buys this for $52K, I don't think they will be able to get a purchase money loan for $52K for under 6%. I think most investors would be hard pressed to get a $52K loan under these circumstances for any rate and terms. Fannie Mae type loans are going to require at least 25% down, but should get a rate under 6% and a 30 year term. Commercial loans are going to be a point or so higher, and the lenders I've spoke with limit the term to 15 years. And they still require a 25% down payment.
Like I said in my first post, this is a pretty good deal. Its not a cash cow, and certainly not a $800 a month cash cow except for the first year where you are making the payments, property management, and (I assume from your later pasts) all maintenance. I don't have a bit of confidence in those home warranties, which I think are mostly a marketing tool to make buyers think they have some protection.
The real kicker is that this is retail price. If its listed on the MLS its retail for the condition. Yes, i understand its fixed up. So is 4036 Geraldus Rd, $55K, 3/1, 1399 sq.ft. The other nearby houses, which are all similar in beds, bath, size (where listed) and price don't give any clue about whether they're fixed up or junkers. They don't have the usual clues they are REOs like "bank owned", "corporate owned", "quick possession", "bring your tools", "handyman special" and the like. I see 4276 Kimball Ave for $34,900, 3/1 but only 1199 sq.ft. Now, I'd suspect that's a fixer. And I see 4266 Philsdale Ave for $89,900, also a 3/1, no size listed.
The house next door, 1564 Mink sold recently for $30,750. On the other side, 4122 Mink sold a year ago for $31,500. Around the corner 4143 Mink sold for $79,9000 though its larger and has another bath.
This is an OK deal. Whether you not someone can do better in the area, I don't know. Its simply the fact I see numberous other properties for the same price on the MLS and the fact you're willing to subsidize the first year that makes me wonder.
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Oct 03 '09, 11:05 PM
