First Investment Property (not sure if its a good deal)

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First Investment Property (not sure if its a good deal)

Lesster Maspoch
FL · Member since 2018 · 3 posts · 1 vote

Hello,

We have a deal that we're analyzing, since we are new to investing in real estate I was hoping that we can get some input from more seasoned investors as to whether this investment is a good deal or not.

Property Type: SFR

Location: Spartanburg, SC

Profile: 2Br/1Bath 864 sq ft

Built: 1960

Price: $53,000

Closing Costs: $3,530 (we are paying the cc)

TOTAL: $56,530

Taxes : $1,400 approx

Insurance: $730

We are buying this from an investor and there's a tenant already in place which they are staying, this is a cash deal.  We are doing our inspection and that would tell us of any major issues but from driving by it looks like the property definitely needs some TLC if the tenant leaves in order to get it to rent ready again.  

The current rent is $595, a house of similar profile about two blocks away is renting for $750 so I believe the rent is low currently on the property we are looking at. The property is located a block away from a very nice apartment complex with retail shops and those apartments are renting in upwards of $1,000.  There's a community being built about four blocks away where the homes are starting in the $140k range.

I ran the numbers, as best as I could given that I don't know much, and the numbers are not what I believe to be great. What is keeping us interested is that the neighborhood is getting an influx of big investments from big firms which they have a lot more data than we have so if they are putting their big budgets into that neighborhood is because they are seeing positive growth.  This is one of those deals that the numbers might not be great but the potential seems to be there....one of those that maybe 5 years from now you look back and say "we should have bought that".  Again this is our first one so I don't want to fall into the mistake of convincing myself that is a good deal just because we want to invest.

Thank you in advance and sorry for the long post :)

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Nick Robinson
Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 344 votes
6y

@Lesster Maspoch

Lesster,

So you are this buying this deal all cash? If you break down the numbers:

$7,140 GSI (Gross Scheduled Income)

-$1,400 Taxes

-$730 Insurance

-$571.20 Management Fee @8% (Assuming you have PM since your in FL and prop is in SC)

$4,438.80/yr (still nothing for CapEx or expenses, which you will have)

Or look at 50% rule

$7,140 GSI

-$3,570 (50% for expenses ) 

-$571.20 Management Fee @8% (Assuming you have PM since your in FL and prop is in SC)

$2,998.80/yr 

Thats a 5.3% CoCr.  If I did this deal I would probably leave this in a maintenance fund till it hit about $5,000.  Obviously not knowing this market and taking your further analysis of the area thinking your going to be getting a lot of appreciation(I usually write it down but doesn't factor into my numbers because it is speculation) and that you believe rents should be $750/mo that looks like this

$9,000 GSI

-$4,500 50% expenses 

-$720 PM@8%

$3,780/yr

Thats 6.69% CoCr.  So takes about 15yrs to make your money back based on CF.  I know some people include PM as part of the 50% so that improves you to 7.96%CoCr which would take you about 12.5yrs to make your money back.

All depends on you look at it and how you do your numbers.  I usually write things more conservative because I don't want to do any pocket shots.  Regardless of anything I do believe you should leave about $5,000 in a fund to handle any unforeseen maintenance or any issues that arise. 

Hope this helps.

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  • Nick Robinson
    Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 344 votes
    6y

    @Lesster Maspoch

    Lesster,

    So you are this buying this deal all cash? If you break down the numbers:

    $7,140 GSI (Gross Scheduled Income)

    -$1,400 Taxes

    -$730 Insurance

    -$571.20 Management Fee @8% (Assuming you have PM since your in FL and prop is in SC)

    $4,438.80/yr (still nothing for CapEx or expenses, which you will have)

    Or look at 50% rule

    $7,140 GSI

    -$3,570 (50% for expenses ) 

    -$571.20 Management Fee @8% (Assuming you have PM since your in FL and prop is in SC)

    $2,998.80/yr 

    Thats a 5.3% CoCr.  If I did this deal I would probably leave this in a maintenance fund till it hit about $5,000.  Obviously not knowing this market and taking your further analysis of the area thinking your going to be getting a lot of appreciation(I usually write it down but doesn't factor into my numbers because it is speculation) and that you believe rents should be $750/mo that looks like this

    $9,000 GSI

    -$4,500 50% expenses 

    -$720 PM@8%

    $3,780/yr

    Thats 6.69% CoCr.  So takes about 15yrs to make your money back based on CF.  I know some people include PM as part of the 50% so that improves you to 7.96%CoCr which would take you about 12.5yrs to make your money back.

    All depends on you look at it and how you do your numbers.  I usually write things more conservative because I don't want to do any pocket shots.  Regardless of anything I do believe you should leave about $5,000 in a fund to handle any unforeseen maintenance or any issues that arise. 

    Hope this helps.

    2Reply
  • Lesster Maspoch
    OP
    FL · Member since 2018 · 3 posts · 1 vote
    6y

    @Nick Robinson Hey Nick, thank you so much for taking the time to answer.  

    Your calculations are around what I'm looking at as well and I 100% agree with the $5,000 cushion for repairs, we had already set that aside, especially with the age of the home. My goal is that if we go ahead and move forward with the property once we close then go to a bank and take a mortgage out of it so we can take some of the investment out and use that to find the next one instead of just leaving all the money in the property, almost like the BRRRR principle. Although, since the tenant is already in place we are going to hold off any big repairs until the tenant leaves. One more positive thing is that a home of similar size, a bit more updated, just sold for $99,000.

    We are waiting until the inspection to have all the information before making a final decision.  As I'm sure you remember the first one is the hardest so just leaning on the knowledge and goodwill fo people like you to help a beginner take the leap of faith.

    0Reply
  • Nick Robinson
    Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 344 votes
    6y

    @Lesster Maspoch

    The first one is definitely the hardest. What is the reasoning behind buying the house out right and then refinancing it? Do you think it will appraise more than what you are buying it for so you can pull that money out?

    0Reply
  • Lesster Maspoch
    OP
    FL · Member since 2018 · 3 posts · 1 vote
    6y

    @Nick Robinson At this time we are still playing with the idea of just leaving it as a zero debt investment (the wife is leaning towards that) or taking money out.  The main reason that I'm leaning towards taking a mortgage out on it is to have some cash to invest in the next property.

    0Reply
  • Nick Robinson
    Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 344 votes
    6y

    @Lesster Maspoch

    I agree that I want to have cash to keep trying to reinvest. What I meant was instead of buying it out right at the beginning why not just put down whatever you want to keep that cash? When you go to refinance there are going to be fees associated with that. Unless you feel like it’s going to appreciate for more then you bought it for. If it was worth more than what you’re buying it from the investor for I am sure he would sell it for the market price. Another thing to think about is cash flow. Right now your at about $315/mo. So I wouldn’t want to go to much lower than $200ish/mo but you guys have to make the decisions that you feel comfortable with.

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