Deal analysis of rental property

5 Replies

Hey Bigger Pockets!

I would appreciate some help analyzing a deal I'm looking at. 

2919 N 49th Ave

Omaha, NE 68104

 This will be my first deal. I want to get something where I can add value but not a complete gut job for my first one. So, I found a 2bd 1 ba 744sqft house. An older couple is moving. They listed it at $95k a couple months ago and have lower the price a few times and it is now sitting at $80k. 

The house itself is in move in ready condition and should rent as is around $900-$1000. 

I was going to purchase with traditional financing and finish the basement. It is a 6'-2" ceiling height so I can't make it into a bedroom... I was going to make it a living room, add a 1/2 bath and storage in the other half. (Roughly $5k) if it's going to be worth the return. So, possibly there to get more rent and add value. 

I offered $67.5k they countered $79k... I countered $70k they said $75k

So, looking at $75k PP

$900 taxes/yr

$950/ mo rent

The rental calculator told me

$16,500 down (including $1,500 for closing costs)

$149.33 cash flow 

I would manage so that's an additional $95/mo

ROI 10.86%

It's not a home run but it seems fairly safe. 

Let me know if you need any more info. 

What are your thoughts? Thank you in advance!!!

Hi @Jacob Carlson and congrats on taking steps toward that magic Deal #1!

Here are my main thoughts:

  • I believe 2/1s represent unnecessary vacancy risk for landlords. The kinds of living arrangements that can tolerate two bedrooms (roommates, unmarried couples, single-child families) are often inherently delicate. You're always just one soured friendship (or one failed relationship, or one unexpected pregnancy) away from a broken lease.
  • If the current owners have been in this property for a while, I can guarantee there are repairs that will need to be done. You might not discover them all before the sale, but I promise you they are waiting in the wings to potentially wreck your cashflow. Be careful and thorough in your inspection.
  • If you truly believe the retail value of the property is $75K, then as an investor you should not be paying that much! I believe investors should only get involved when they can add value, usually either by buying faster than anyone else or by buying when no retail buyer will. In exchange for this, you deserve a discount (we take 10%) off the retail ARV. That said, if this house has sat at $80K, then the retail buyers in your market are saying it's not worth that much.

So, if you do move forward with this deal, consider a lower asking price and don't be afraid to walk away if you don't get it. Just don't go too far away: With the fall upon us and winter fast approaching, time is definitely on your side. Be sure to follow up in a few weeks if you get a "no" now.

Good luck!

1. Basement addition needing permit since it looks like you are adding a bath.  I would say go for it.

2. The rest sound fine. Just drive around during different time of the evening and weekend see if the neighborhood meets your expectation.

@Mitch Messer Thank you for your in depth reply. Everything you said makes sense and I agree. I ended up walking away from the deal. I don't think there was enough there to add value and I was not going to pay full price. I will continue looking mostly off market since the competition is too high for anything on market.
@Sam Shueh I drove around a few times and it seemed like a decent, quiet area. It is blocks from a semi popular school in town so the location to me was pretty good. But there was not an option to add much value - like a bedroom and the price was too high for an investment even though it appeared to be rent ready. Thank you for your response.

@Jacob Carlson

I haven't double checked your numbers but I'm assuming your ROI is your return on equity.

Seems very, very tight to me @ the $150 / mo.  Hard to see how you'll get ahead and build significant equity.  As another poster mentioned, when you're that tight unless you're banking on appreciation, even unknown repairs will bring you even or down pretty quick....

I think you did the right thing by walking on that one.  Agreed on keeping looking.  You can learn a ton just by seeing/analyzing quite a few!