Is this a good deal?

Buying & Selling Real Estate
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Is this a good deal?

Sam Booth
Member since 2022 · 241 posts · 62 votes

I am in escrow on a foreclosure that fixed up would be about a 200K property. I can get it for about 145K but it needs a few things as its a 50 year old home in a great location. This isn't my first rental, but I want to run these numbers by people to see if it makes sense to everyone else. 

Rent would be $1600. (Property manager takes 10%)

Rehab would be:

45K for new floors, paint, light fixtures, appliances, some plumbing and miscellaneous (one new window, etc) plus new HVAC and ROOF. I usually do some of the work myself such as demo and painting and installing appliances and basic wood work and trim. 

9K Closing costs (includes a right of redemption bond and 1 point to lower interest rate to about 7%) with payments around $1000. 

By the time I pay the property manager 10% there's about 400+ cash flow a month, not counting for vacancies or major cap ex (which would be taken care of initially with new roof, hvac, and water heater, flooring, etc). If I refi then I should be able to get about 75% of the value back out and walk away with around 41K minus fees and maybe lower interest rate. 

Does this all sound good?

Thanks so much!

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Adam M.
Investor · Texas (DFW & West Texas) · Member since 2023 · 86 posts · 55 votes
2y

Ah hold-- on problem here. OOS investor doing 45k worth of rehab. I would tread very carefully-- personally I would pass given the numbers and that you are doing it out of state. Work with local wholesalers and keep underwriting until you find something with a larger spread. Sometimes the best deals are the ones we walk away from.

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  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    2y

    @Sam Booth

    If the property is being bought for 145k and needs 45k in rehab this is not a good deal. The purchase price is too high. What happens if you get into the house and the rehab needed is larger than you originally anticipated? There is zero profit in the deal from an equity perspective.  

    On the rental side, say you take a loan on 150k (75% LTV) at 7.5% rate. Let's say your taxes are 2k per year and insurance is 1k per year.

    Your PITI Payment would be $1,298.82 per month. Then let's add the 10% Property management fee. PITI + PM Fee = $1,458.82 PER month 

    You actually only cash flow $141.18 per month and that's IF your escrow is only 3k annually. 

    All and All - NOT A GOOD DEAL.

    [email protected]413-348-8346
    Freedom Capital Funding, LLC523 Reviews
    WebsiteView Page
    1Reply
  • Adam M.
    Investor · Texas (DFW & West Texas) · Member since 2023 · 86 posts · 55 votes
    2y

    1. Assuming this is a buy and hold it sounds like? 
    2. Since you are in escrow seems like it's pre-foreclosure not an auction sale? If so have you been able to actually see the inside for yourself and not just through picture?
    3. 9k closing costs but how much is your down payment?
    4. Do you absolutely need a property manager for this if it's a SFH?

    Just some further questions to kindly determine where you're at :) 

    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Matthew Crivelli:

    @Sam Booth

    If the property is being bought for 145k and needs 45k in rehab this is not a good deal. The purchase price is too high. What happens if you get into the house and the rehab needed is larger than you originally anticipated? There is zero profit in the deal from an equity perspective.  

    On the rental side, say you take a loan on 150k (75% LTV) at 7.5% rate. Let's say your taxes are 2k per year and insurance is 1k per year.

    Your PITI Payment would be $1,298.82 per month. Then let's add the 10% Property management fee. PITI + PM Fee = $1,458.82 PER month 

    You actually only cash flow $141.18 per month and that's IF your escrow is only 3k annually. 

    All and All - NOT A GOOD DEAL.

    They PITI is $1000 since the insurance and taxes are low in Alabama. I have also seen the inside of the property and confident in the repair costs. I have done this before. Does it sound better now?
    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Adam M.:

    1. Assuming this is a buy and hold it sounds like? 
    2. Since you are in escrow seems like it's pre-foreclosure not an auction sale? If so have you been able to actually see the inside for yourself and not just through picture?
    3. 9k closing costs but how much is your down payment?
    4. Do you absolutely need a property manager for this if it's a SFH?

    Just some further questions to kindly determine where you're at :) 

    It's a buy and hold and it's a VA foreclosure and I have done a inspection and seen the inside and walked through with realtor.
    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Matthew Crivelli:

    @Sam Booth

    If the property is being bought for 145k and needs 45k in rehab this is not a good deal. The purchase price is too high. What happens if you get into the house and the rehab needed is larger than you originally anticipated? There is zero profit in the deal from an equity perspective.  

    On the rental side, say you take a loan on 150k (75% LTV) at 7.5% rate. Let's say your taxes are 2k per year and insurance is 1k per year.

    Your PITI Payment would be $1,298.82 per month. Then let's add the 10% Property management fee. PITI + PM Fee = $1,458.82 PER month 

    You actually only cash flow $141.18 per month and that's IF your escrow is only 3k annually. 

    All and All - NOT A GOOD DEAL.

    Also walked inside and had hoke inspection. 
    0Reply
  • Adam M.
    Investor · Texas (DFW & West Texas) · Member since 2023 · 86 posts · 55 votes
    2y

    But in addition to my comment above: yes if the focus is more on a "buy and hold approach" where you are looking for cash flow and assuming you have gotten some super amazing loan product where you can actually obtain some each month... I am raising an eyebrow.

    For a SFH there typically needs to at least be some sort of equity and if not, then the debt to income needs to be strong. Assuming your debt (as @Matthew Crivelli explained) you are using a 75% product on today's rates there is not actually much cash flow, considering the time and effort going through 45k worth of repairs....

    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Adam M.:

    1. Assuming this is a buy and hold it sounds like? 
    2. Since you are in escrow seems like it's pre-foreclosure not an auction sale? If so have you been able to actually see the inside for yourself and not just through picture?
    3. 9k closing costs but how much is your down payment?
    4. Do you absolutely need a property manager for this if it's a SFH?

    Just some further questions to kindly determine where you're at :) 

    Down payment is 25% 
    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Adam M.:

    But in addition to my comment above: yes if the focus is more on a "buy and hold approach" where you are looking for cash flow and assuming you have gotten some super amazing loan product where you can actually obtain some each month... I am raising an eyebrow.

    For a SFH there typically needs to at least be some sort of equity and if not, then the debt to income needs to be strong. Assuming your debt (as @Matthew Crivelli explained) you are using a 75% product on today's rates there is not actually much cash flow, considering the time and effort going through 45k worth of repairs....


     With higher rates it's not the cash flow I had before but just wondering if 400 bucks a month is good (again all major cap ex will be redone). 

    0Reply
  • Adam M.
    Investor · Texas (DFW & West Texas) · Member since 2023 · 86 posts · 55 votes
    2y

    Oh ok-- so if the PITI is $1000 that's much better. I would try and cut out the PM it's only a SFH to increase your cash flow. Also is it in a good area? If so then it's looking better

    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Adam M.:

    Oh ok-- so if the PITI is $1000 that's much better. I would try and cut out the PM it's only a SFH to increase your cash flow. Also is it in a good area? If so then it's looking better

    Super good area! I am out of state so PM needed.
    0Reply
  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    2y
    Quote from @Sam Booth:
    Quote from @Matthew Crivelli:

    @Sam Booth

    If the property is being bought for 145k and needs 45k in rehab this is not a good deal. The purchase price is too high. What happens if you get into the house and the rehab needed is larger than you originally anticipated? There is zero profit in the deal from an equity perspective.  

    On the rental side, say you take a loan on 150k (75% LTV) at 7.5% rate. Let's say your taxes are 2k per year and insurance is 1k per year.

    Your PITI Payment would be $1,298.82 per month. Then let's add the 10% Property management fee. PITI + PM Fee = $1,458.82 PER month 

    You actually only cash flow $141.18 per month and that's IF your escrow is only 3k annually. 

    All and All - NOT A GOOD DEAL.

    They PITI is $1000 since the insurance and taxes are low in Alabama. I have also seen the inside of the property and confident in the repair costs. I have done this before. Does it sound better now?
    145k Purchase + 45k Rehab + 9k in closing cost = 199k. Your estimated ARV is 200k, zero juice in the squeeze. In my opinion, the numbers are way to tight on this deal. I would get an appraisal done on the property to obtain an as-is value before you buy it. It sounds like the bank is selling the property at an inflated price. (Which they will try to do if they are into themselves for a high amount) 
    [email protected]413-348-8346
    Freedom Capital Funding, LLC523 Reviews
    WebsiteView Page
    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Matthew Crivelli:
    Quote from @Sam Booth:
    Quote from @Matthew Crivelli:

    @Sam Booth

    If the property is being bought for 145k and needs 45k in rehab this is not a good deal. The purchase price is too high. What happens if you get into the house and the rehab needed is larger than you originally anticipated? There is zero profit in the deal from an equity perspective.  

    On the rental side, say you take a loan on 150k (75% LTV) at 7.5% rate. Let's say your taxes are 2k per year and insurance is 1k per year.

    Your PITI Payment would be $1,298.82 per month. Then let's add the 10% Property management fee. PITI + PM Fee = $1,458.82 PER month 

    You actually only cash flow $141.18 per month and that's IF your escrow is only 3k annually. 

    All and All - NOT A GOOD DEAL.

    They PITI is $1000 since the insurance and taxes are low in Alabama. I have also seen the inside of the property and confident in the repair costs. I have done this before. Does it sound better now?
    145k Purchase + 45k Rehab + 9k in closing cost = 199k. Your estimated ARV is 200k, zero juice in the squeeze. In my opinion, the numbers are way to tight on this deal. I would get an appraisal done on the property to obtain an as-is value before you buy it. It sounds like the bank is selling the property at an inflated price. (Which they will try to do if they are into themselves for a high amount) 
    What would be a good spread, 10K minimum? I have submitted a counter offer and hoping for a slightly lower price but in this same market it's hard to find anything.
    0Reply
  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    2y
    Quote from @Sam Booth:
    Quote from @Matthew Crivelli:
    Quote from @Sam Booth:
    Quote from @Matthew Crivelli:

    @Sam Booth

    If the property is being bought for 145k and needs 45k in rehab this is not a good deal. The purchase price is too high. What happens if you get into the house and the rehab needed is larger than you originally anticipated? There is zero profit in the deal from an equity perspective.  

    On the rental side, say you take a loan on 150k (75% LTV) at 7.5% rate. Let's say your taxes are 2k per year and insurance is 1k per year.

    Your PITI Payment would be $1,298.82 per month. Then let's add the 10% Property management fee. PITI + PM Fee = $1,458.82 PER month 

    You actually only cash flow $141.18 per month and that's IF your escrow is only 3k annually. 

    All and All - NOT A GOOD DEAL.

    They PITI is $1000 since the insurance and taxes are low in Alabama. I have also seen the inside of the property and confident in the repair costs. I have done this before. Does it sound better now?
    145k Purchase + 45k Rehab + 9k in closing cost = 199k. Your estimated ARV is 200k, zero juice in the squeeze. In my opinion, the numbers are way to tight on this deal. I would get an appraisal done on the property to obtain an as-is value before you buy it. It sounds like the bank is selling the property at an inflated price. (Which they will try to do if they are into themselves for a high amount) 
    What would be a good spread, 10K minimum? I have submitted a counter offer and hoping for a slightly lower price but in this same market it's hard to find anything.
    A good spread is 30%+ profit after accounting for purchase & rehab costs. 
    [email protected]413-348-8346
    Freedom Capital Funding, LLC523 Reviews
    WebsiteView Page
    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Matthew Crivelli:
    Quote from @Sam Booth:
    Quote from @Matthew Crivelli:
    Quote from @Sam Booth:
    Quote from @Matthew Crivelli:

    @Sam Booth

    If the property is being bought for 145k and needs 45k in rehab this is not a good deal. The purchase price is too high. What happens if you get into the house and the rehab needed is larger than you originally anticipated? There is zero profit in the deal from an equity perspective.  

    On the rental side, say you take a loan on 150k (75% LTV) at 7.5% rate. Let's say your taxes are 2k per year and insurance is 1k per year.

    Your PITI Payment would be $1,298.82 per month. Then let's add the 10% Property management fee. PITI + PM Fee = $1,458.82 PER month 

    You actually only cash flow $141.18 per month and that's IF your escrow is only 3k annually. 

    All and All - NOT A GOOD DEAL.

    They PITI is $1000 since the insurance and taxes are low in Alabama. I have also seen the inside of the property and confident in the repair costs. I have done this before. Does it sound better now?
    145k Purchase + 45k Rehab + 9k in closing cost = 199k. Your estimated ARV is 200k, zero juice in the squeeze. In my opinion, the numbers are way to tight on this deal. I would get an appraisal done on the property to obtain an as-is value before you buy it. It sounds like the bank is selling the property at an inflated price. (Which they will try to do if they are into themselves for a high amount) 
    What would be a good spread, 10K minimum? I have submitted a counter offer and hoping for a slightly lower price but in this same market it's hard to find anything.
    A good spread is 30%+ profit after accounting for purchase & rehab costs. 
    I personally haven't ever got a deal that good but I think these VA foreclosures are not very willing to lower the price much. 
    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Matthew Crivelli:
    Quote from @Sam Booth:
    Quote from @Matthew Crivelli:
    Quote from @Sam Booth:
    Quote from @Matthew Crivelli:

    @Sam Booth

    If the property is being bought for 145k and needs 45k in rehab this is not a good deal. The purchase price is too high. What happens if you get into the house and the rehab needed is larger than you originally anticipated? There is zero profit in the deal from an equity perspective.  

    On the rental side, say you take a loan on 150k (75% LTV) at 7.5% rate. Let's say your taxes are 2k per year and insurance is 1k per year.

    Your PITI Payment would be $1,298.82 per month. Then let's add the 10% Property management fee. PITI + PM Fee = $1,458.82 PER month 

    You actually only cash flow $141.18 per month and that's IF your escrow is only 3k annually. 

    All and All - NOT A GOOD DEAL.

    They PITI is $1000 since the insurance and taxes are low in Alabama. I have also seen the inside of the property and confident in the repair costs. I have done this before. Does it sound better now?
    145k Purchase + 45k Rehab + 9k in closing cost = 199k. Your estimated ARV is 200k, zero juice in the squeeze. In my opinion, the numbers are way to tight on this deal. I would get an appraisal done on the property to obtain an as-is value before you buy it. It sounds like the bank is selling the property at an inflated price. (Which they will try to do if they are into themselves for a high amount) 
    What would be a good spread, 10K minimum? I have submitted a counter offer and hoping for a slightly lower price but in this same market it's hard to find anything.
    A good spread is 30%+ profit after accounting for purchase & rehab costs. 
    I just haven't found any properties that I can buy and repair for 75% of the value. I know that's the Golden standard!
    0Reply
  • Adam M.
    Investor · Texas (DFW & West Texas) · Member since 2023 · 86 posts · 55 votes
    2y

    Ah hold-- on problem here. OOS investor doing 45k worth of rehab. I would tread very carefully-- personally I would pass given the numbers and that you are doing it out of state. Work with local wholesalers and keep underwriting until you find something with a larger spread. Sometimes the best deals are the ones we walk away from.

    3Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Adam M.:

    Ah hold-- on problem here. OOS investor doing 45k worth of rehab. I would tread very carefully-- personally I would pass given the numbers and that you are doing it out of state. Work with local wholesalers and keep underwriting until you find something with a larger spread. Sometimes the best deals are the ones we walk away from.


     I live at the property for 3 weeks during rehab so the OOS is only management. I have worked with 1 wholesaler but to be honest with the repairs it wasn't really any better then market except no competition 

    0Reply
  • Leo R.
    Investor · Member since 2021 · 591 posts · 695 votes
    2y

    @Sam Booth most investors want to see a spread of at least 30%, but this is an oversimplification because it doesn't consider important factors like: how much money you're putting down, how much the repairs will cost, how much of your time and effort the repairs will require, the appreciation potential, the cashflow potential, and a myriad of other important factors. 

    Depending on the property and the deal, an experienced investor may want more than a 30% spread (and in some deals, they may be willing to take less than a 30% spread--for instance, if the property will produce incredible cashflow after rehab, they may accept a lower spread). 

    It sounds like after rehab, this property won't be producing much cashflow...and if the ARV is only 200k, it probably won't be producing much appreciation, either (at 2.5% appreciation, you'd only be picking up $5k/yr in equity). So, with minimal cashflow and minimal appreciation, you'd need to make your money in equity via an aggressive purchase.

    Personally, if I have to put 25% of my own money down AND also do a lot of the rehab work myself, AND the property won't cashflow much, AND the property won't appreciate much, I would want a bigger spread.

    Keeping the math simple, if the ARV is $200k, and IF there were a 30% spread on this deal, that would give you $60k of equity after rehab (not including equity from any down payment). So, I'd be asking myself questions like: "how much of my own money, and my own time, blood, sweat and tears am I willing to put into this thing to get $60k of equity?  What's my return if the house costs $X I have to put Y% down, and pay $Z to finish the rehab?" etc.

    As others have mentioned, if you have to spend and borrow approx $200k to acquire the property and bring it up to snuff, and the ARV is only 200k, then there's no equity--not a good deal.

    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Leo R.:

    @Sam Booth most investors want to see a spread of at least 30%, but this is an oversimplification because it doesn't consider important factors like: how much money you're putting down, how much the repairs will cost, how much of your time and effort the repairs will require, the appreciation potential, the cashflow potential, and a myriad of other important factors. 

    Depending on the property and the deal, an experienced investor may want more than a 30% spread (and in some deals, they may be willing to take less than a 30% spread--for instance, if the property will produce incredible cashflow after rehab, they may accept a lower spread). 

    It sounds like after rehab, this property won't be producing much cashflow...and if the ARV is only 200k, it probably won't be producing much appreciation, either (at 2.5% appreciation, you'd only be picking up $5k/yr in equity). So, with minimal cashflow and minimal appreciation, you'd need to make your money in equity via an aggressive purchase.

    Personally, if I have to put 25% of my own money down AND also do a lot of the rehab work myself, AND the property won't cashflow much, AND the property won't appreciate much, I would want a bigger spread.

    Keeping the math simple, if the ARV is $200k, and IF there were a 30% spread on this deal, that would give you $60k of equity after rehab (not including equity from any down payment). So, I'd be asking myself questions like: "how much of my own money, and my own time, blood, sweat and tears am I willing to put into this thing to get $60k of equity?  What's my return if the house costs $X I have to put Y% down, and pay $Z to finish the rehab?" etc.

    As others have mentioned, if you have to spend and borrow approx $200k to acquire the property and bring it up to snuff, and the ARV is only 200k, then there's no equity--not a good deal.


    I see what your saying. I just haven't been able to find wholesale deals, MLS deals on market for a long time or off market that in this environment allows me to buy for 75% of value. What's your better sources of leads? Especially after nothing new on market in 2023!

    0Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    2y

    Awful deal. Move on to the next 1.

    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Bud Gaffney:

    Awful deal. Move on to the next 1.


     What's your minimum cashflow on single family? Or do you do a cash on cash return? 

    0Reply
  • Greg ParkerBusiness Member
    Realtor, Contractor, Property Manager · Montgomery AL and Kowaliga, AL · Member since 2017 · 663 posts · 536 votes
    2y

    Agreed with most of those comments.  Not enough equity in this one.

    gp

    [email protected]
    MGM Property Pros LLC
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    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Greg Parker:

    Agreed with most of those comments.  Not enough equity in this one.

    gp

    So you would want to get about 60K equity on a 200k property? So that would mean buy it at about 85K and fix up for 45k. I buy in Montgomery, have you seen anything like that around? In good areas?
    0Reply
  • Greg ParkerBusiness Member
    Realtor, Contractor, Property Manager · Montgomery AL and Kowaliga, AL · Member since 2017 · 663 posts · 536 votes
    2y

    Not that much. Most of the deals I see will have about 20k equity. Average deal right now in a good B area is, purchase for 110k, renovate 10k, rent for $1,200. ARV 140k.

    Some better, some worse.  But that is the sweet spot.  When you get up around the 200k houses, the rent rate backs way off from the 1% rule.

    [email protected]
    MGM Property Pros LLC
    View Page
    0Reply
  • Sam Booth
    OP
    Member since 2022 · 241 posts · 62 votes
    2y
    Quote from @Greg Parker:

    Not that much. Most of the deals I see will have about 20k equity. Average deal right now in a good B area is, purchase for 110k, renovate 10k, rent for $1,200. ARV 140k.

    Some better, some worse.  But that is the sweet spot.  When you get up around the 200k houses, the rent rate backs way off from the 1% rule.

    Good to hear! 30% equity seems high to me. I will message you my email and if you see something let me know! 
    0Reply
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