I am a first time investor analyzing (and will soon have my agent and a trusted family member walk through/video property) a midwest duplex in a midsize town for a prospective buy and hold investment. Neighborhood and up/down duplex are both C class. I have done my preliminary analysis (I think), and I hope you all can give your insight, point out my shortcomings or omissions in calculations, and generally remark on how the numbers of the deal appear.
Please note, I will not be offering full asking price for this property, because ARV won't reach current asking price + rehab cost. Part of my inquiry is, given my closing costs are low (no loan origination fee), in what range should my maximum allowable offer land?
Here is the info:
Tenanted duplex with 2 2br/1ba units, both tenanted and renting for $600 each.
Financing is via private loan at 4% interest only payments and final balloon payment at end of term (5 or 10 years, tbd)
Asking price : 57,900 ***note: following numbers are assuming the seller's asking price, which I would NOT offer***
Est'd ARV: 60,000
Est'd rehab cost: 15,240
Closing/Legal cost : 1,500
Down Payment : 17,000
Total cost of project : 70,400
Total borrowed amount : 53,400
Total Gross income : 15,880
Total Expenses : 9,054
Net Operating Income : 5,478
Annual Debt Service : 2,136
Cash Flow : 3,342
Even with the over-market asking price, this property is already cash flowing. However, given the high asking price, I would lose an equity building short-term exit strategy. In fact, if I sold too soon, I would undoubtedly lose money. I don't want to have to depend on appreciation, which may or may not happen.
How much would you offer? Why?
Thanks again, everyone, for your input. I look forward to your responses!