Under contract, am I blowing this deal?? Help!!

9 Replies

Hello everyone! I am currently under contract for a home which on the surface looks like a great buy but I can't quite get a sense of my numbers... they keep coming out bad. I have tried to use the Bigger Pockets calculator but I feel like I am guessing on some key variables. I have a great lender who I have worked with before. My intent is to rent this single family home, which is in a great area that I know for a fact is on the verge of MAJOR growth/rental demand. Here are the facts:

The house: 4BD 2BA, 1666 SQ FT, Two Story, Built in 1955 but has since had many renovations done, it will require very little to prepare for tenants

Total Cash to Close: $178k

Loan: $424,100 @ 3.5%

Rental Comps: $2950-4500 a month

Vacancy for this area is <2%

Sale comps: 600-675k on most recent sales of similar homes

Property Management: 8% of rent

Property Tax: $4600 annually

My question is: Is this a good buy/ good use of 178k of my money? If rental income stream is what I am after, I get a sense that I am tying up a lot of capital that could be put to good use elsewhere? Standing by for questions on this discussion. I really appreciate all the help!

@Nico Roe

We'd be guessing since you didn't mention if it cash flows or not are the rest of your variables.

Can you post a link or picture of the BP calculator PDF report for the property?

Again... some of the numbers required guestimation- I am using the average of my rental income comps for instance.

I know! I've been hanging out on the lower end as far as inputs... I assume being conservative is better. I am trying to figure out what the guy who got 4500 had going for him.

Nope, IMO its a bad deal that you're trying to talk yourself into.  Find a better deal.

The only numbers you needed to figure that out-

Total Purchase Price: $602K

Rental Comps: $2950-4500 (0.5-0.7%)

You want to look for between 1-2% or above, and closer to 2% the better, but its almost impossible for the numbers to ever work on a deal below 1% rent rates.

A 30 year note on $424K would be right at $2,000 mo before adding in Ins, Taxes, PMI, Prop Mgmt, Reserves, etc. The numbers would be way to tight.

What about resale value down the road? If I can play the long game here wouldn't that be worth considering?

Originally posted by @Nico Roe :

What about resale value down the road? If I can play the long game here wouldn't that be worth considering?

Thats a lot of money to layout on a long term gamble .

heres the problem with renting higher end homes . In my area we have lots of high end rentals sitting empty . Those that can afford $3000 a month are usually transfers that need a house fast . If they will be here a while , they start looking to buy as soon as they settle in . Once they move out these houses take months to re rent . 

@Nico Roe I'm on my phone and can't see your calculator but I can tell you this. 1)a 450k house is a poor rental for cash flow. The higher the value of house the lower your rent to cost will be. 2). A house that rents for 4500 a month will be hard to keep rented. Normally somebody that can make that high of rent would be able to buy. This means your tenants will likely be between homes or have poor credit or something. You likely will have vacancy trouble etc. 3) I buy houses in the 125-150k range after rehab. They rent at 12 to $1300 a month normally. After a year or 2 they will be over 1% rent to cost. At 25% down pmnt your $178000 will be 4 houses and leave you a good amount in reserves. At 1200 a month that's $4800 a month in rent and if a tenant leaves it will hurt way less. Here's the rub. You said you were sure the house would go up in value. Depending on your risk factor you could stand to make more money renting with little or even negative cash flow and selling when the property goes up. This is pure gambling in my market but some folks do it. (California, Seattle and other areas). Just beware it's going to be tough to make a 450k rental cash flow like a c or b class rental. RR

Hey Team- I bailed on the contract. Looking to use my money to buy more units in a lower income area. Thanks for the wisdom and the help!!!!!

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