Buy&Hold - Would you consider this as a good deal?

15 Replies

Would you consider it as a good deal? If so, why?

Purchase Price $ 130.000

Improvements $ 5.000

Closing Costs $ 3.900

Total Cost $ 138.900

Downpayment20%

Finance Amt $ 104.000

Downpayment Amt $ 26.000

Interest Rate2,00%

Mortgage (yrs)25

Mortgage Payment $ 441

Loan fees $ 2.000

Cash Outlay $ 36.900

# of Units1

Total Rent/Month $ 1.400

Other Rev/Month $ -

Tenant Duration (months)0

Gross Rev/Month $ 1.400

Gross Rev/Year $ 16.800

Goss Cost/Month $ 618,75 

Vacancy Rate4,0%

Tax rate: 21%

Key Values

Cost/Unit $ 138.900

Capitalization Rate6,27%

GRM 8,27

Cash ROI9,25%

Total ROI18,03%

DSCR1,65

Annual Cash Flow $ 3.413

After repair value: 160.000

I would not consider this a good deal for me. Too much cash outlay, not high enough return on that cash. And did I read right that you have interest rate at 2%? Is that correct? Deals are good or bad based on your goals so while it's not a good deal for me, it could work for you.

Thanks for your reply :) Which rates of return are you normally looking into a similar cash outlay based buy & hold investment? Do you have any suggestion on these data? What could I do to make them works?

Best!

Right now I'm into the BRRRR strategy so, ideally, I have very little, if any, of my own cash in the deal. If I were doing a conventional 20% down deal, I'd like at least 10% return, preferably 15%. I'd want to get my money back in 7-8 years, max.

Thanks. When you say return, you mean Cash ROI is that correct? (and not total ROI)

Would you say that on this Deal NOI's very low because of high cost or low rental income?

I would dig into BRRRR cause I do not know what that is (any link on that?)

Best,

Yes, cash ROI. You're return is low because the down payment is high vs. rental income. Search BRRRR here on BP. There are a million posts about it and many webinars that go through it at length.

is this a retail house? numbers are TIGHT

cash on cash needs to be higher for that kind of outlay.

and your interest rate is set at 2%.....this must be an error.

@Jason D. following your suggestion on BRRRRR I have spoken with my bank for refinance which in Italy's call seems to be called "Mutuo liquidità". They told me that generally with this product the bank may refinance up to 60% of the property market price (value) and interest rate on the mortgage are higher? What sort of percentage banks normally refinance in your country? I'm looking in the right products or you know about alternative?

Thank you for your reply @Andrew Syrios . What do you mean for tight? Could you give me an advice for optimal total cost/after repair value. How would you calculated after repair value? (the way i did it was to sum up Purchase Price $ 130.000, improvements $ 5.000, closing Costs $ 3.900 and add an average of 8%  - based on nothing.....)

@Michael Plante as for interest rate at 2% I believe this is because of negative Euribor. I currently have two proposal from an Italian primary bank: a)fix 2.60 b)variable 1.70

@Alexander Felice what do you mean for retail? Could you give me an example of higher cash on cash for this outlay?  Which are the main variable I may working on to obtain better cash on cash? As for interest rate at 2% I believe this is because of negative Euribor. I currently have two proposal from an Italian primary bank: a)fix 2.60 b)variable 1.70

Thank you all for your support!

Originally posted by @Fabio Busatto :

@Jason D. following your suggestion on BRRRRR I have spoken with my bank for refinance which in Italy's call seems to be called "Mutuo liquidità". They told me that generally with this product the bank may refinance up to 60% of the property market price (value) and interest rate on the mortgage are higher? What sort of percentage banks normally refinance in your country? I'm looking in the right products or you know about alternative?

Thank you for your reply @Andrew Syrios. What do you mean for tight? Could you give me an advice for optimal total cost/after repair value. How would you calculated after repair value? (the way i did it was to sum up Purchase Price $ 130.000, improvements $ 5.000, closing Costs $ 3.900 and add an average of 8%  - based on nothing.....)

@Michael Plante as for interest rate at 2% I believe this is because of negative Euribor. I currently have two proposal from an Italian primary bank: a)fix 2.60 b)variable 1.70

@Alexander Felice what do you mean for retail? Could you give me an example of higher cash on cash for this outlay?  Which are the main variable I may working on to obtain better cash on cash? As for interest rate at 2% I believe this is because of negative Euribor. I currently have two proposal from an Italian primary bank: a)fix 2.60 b)variable 1.70

Thank you all for your support!

With the BRRRR strategy, I aim to be all in for 75% of its market value. That way, I can refinance out all of the money I put in. If you are comfortable leaving some money in the property, that's your call. I know it's a tough market out there. But we try to aim for that 75%.

once you have done a BRRRR It's hard to look at doing it any other way. I've done a couple, my ROI is infinite because I left no money in the deal. Worst case I would prefer to get my money back in less than 2 years, and year 2 would be irritating.

No idea if this strategy works outside of the US However.

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