Second Opinion

[Josh Tonnesen]

Hello,

I am looking to close on my first investment property within the next few weeks.  It is a foreclosed property, with some needed repairs.  I have already walked through the house twice, and one with a family member who has flipped houses before and knows construction decently well.  I am looking for a second opinion from an investor who would not mind giving me honest feedback.  The house is bank-owned and built in 1910.  I believe it has not been vacant for more than a few months.  Here are the numbers:

House is for sale at: 28000

It is a 2 bedroom, 1.5 bath

1724 square-feet 

Estimated selling price, 45000

My plan is to hold the property and rent it out.  I am currently a college student, living in a college town, and I know the rent market very well.  The 2 bedrooms in this house are very, very large, and could easily be broken into 4 separate smaller bedrooms.  I believe this would allow me to increase the rent I could get. 

I have run some of the math, and my estimates are that the house could be renovated into livable condition for less than $7000, not including splitting the bedrooms.  With splitting the bedrooms, it should cost around 8415.  I would be doing most of the work by myself and with the family member mentioned above, so I did not factor in labor costs.  

Now, I have run a few different cash flow analysis and I assumed that I would get a $28,000 mortgage at 4% with no money down (I understand that I would have to put money down, but I thought that this would increase the mortgage price per month so I thought it would be more conservative to assume a higher-than-actual mortgage price) (monthly payments of 170), and that 50% of the rent income would go towards expenses.  I am paying my landlord rent, and I have many friends that are paying rent as well, so I know what the students would accept for rent.  I also factored in taxes of 700 per year.  I ran 5 different estimates for the cashflow and they are below:

Rent Values	Estimated 50% of Income goes to Expenses	Minus Mortgage	Cash Flow (Monthly)	Cash Flow (Annually)	Minus Tax
1% of Market Value	450		*.50		225	-170		55			660		-700	-40
1.5% of Market Value	675		*.50		337.5	-170		167.5			2010		-700	1310
2% of Market Value	900		*.50		450	-170		280			3360		-700	2660
2 People at 300	600		*.50		300	-170		130			1560		-700	860
4 People at 230	920		*.50		460	-170		290			3480		-700	2780

I am quite confident that I could get 230+ per person for rent, as well as get 4 people.  The location is ok.  There is a small yard attached as well, but the city I go to school in is pretty suburban.  There has not been any recent crime reported in the area, but there are a lot of registered sex offenders in the city.  It is also located across from an elementary school.

I have talked to a few banks about loaning me the necessary money, and one said that I should be expecting a call to confirm my preapproval.

I was also looking for some negotiating advice about what I should offer them.  From my numbers, I think that I could still do well at 28000, but I would obviously like get it cheaper if possible.  I would appreciate the advice as well as the connection.

-Josh Tonnesen