Is this a good deal?

2 Replies

Just put an offer in on short sale property for 92k in Bucks County, Pa. Average comps for well maintained houses is around 135k. Average rentals for 3 beds, 1 bath, 1000sft is 1400. Question: Is this a good deal? Sale price of 92k, with 20% down and 5% interest, (taxes $3000/year, $1200 insurance) plus $12k needed in renovations, plus $2500 for short sale negotiator...rental income $1400/month J

Hey @Ray Realdine see its your first post,  welcome aboard.  Ill take a crack at answering for you.

A couple things to consider, as a general rule on a flip you want to try to hit 70% of the after repaired value when you add price and rehab so in this case if we assume its worth 135K the most a flipper would pay would be 135,000*.7=94500 minus any repair costs which in this case is 12K so a flipper would only pay 94500-12000=$82,500 for the property which is less than the 92K you are looking at.  Now this doesn't mean its a bad deal but it does mean that you wont be able to easily flip out of the property for a big profit and on a first deal having a back plan is important.  It does however appear that you would have some equity built in since you are putting 20% down about 18K and also I assume paying to fix it up which means you would owe 74K on a 135K house when its all said and done which is pretty sweet for a first deal.

All that being said lets look at the rental info (again I am assuming your numbers are correct-so make sure they are before buying it)

Rent = 1400*12= $16800/yr

Expenses

So for expenses what I do is assume 10% vacancy and 8% management fees you may manage it yourself and save that but you should plan on it in case at some point you dont want to manage it any longer plus you need to get paid for your time.  18% of 16800 is $3024 per year, typically I assume 5 to 10% for maintenance but since you are budgeting renovations I think the 5% is probably good which is another$840/year so that leave us with this

Expenses = $3024+840+$3000 (taxes) + $1200 (insurance)= $8064/year

Which leaves you with $8736 with which to pay your mortgage ($728/month) assuming you have a 30 year amortization schedule at 5% your payment would be just under $400 per month leaving you about $328 cashflow per month 

For a total return of $328*12= $3936 per year on an investment of 18K (down payment)+12K (reno) = 30K

3936/30,000= a very healthy 13.12% cash on cash return and you will also be paying it down over time so I would say if you like the area and are comfortable with the numbers go for it its a pretty solid deal!

Good luck and let me know how it goes.

Jeffrey Holst, Real Estate Agent in Tennessee (#343371)

Wow!

Thank you so much Jeff for analyzing my deal. My strategy going into this is to buy and hold. I am looking to build a real estate portfolio over time, not just flip properties...at least not yet.

I ran the numbers multiple times, using different online calculators, but I still wasn't 100% sure of the projected figures I ended up with. I wanted to see what veteran real estate investors had to say. In my calculations, I did not figure in 10% vacancy, I used 5% and I did not factor in property management, since I would be doing the management myself. I also figured 5% for maintenance and repairs. My calculations put me at $400+ for cash flow and 13% cash on cash return.

I will keep you posted. Thanks again!

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