First Possible Deal. Please help critique.

[Visal Nip]

Hello everyone. I’ve been a long time reader and listener of the Biggerpockets’ community for quite some time now. I have even reached out to some awesome out of state investors for advice and guidance, but I have decided a while ago to invest locally.

Please help me critique this possible deal. It isn’t by all means the best deal out there, but for my first investment property; it looks good enough as a stepping stone to bigger and better things.

Property Location: Rural area of Southern California that is about 30 to 40 minutes to the beach. 1 - 1.5 hours to Hollywood depending on traffic.

Demographic: Small blue-collar city whose population is mainly White and Hispanics (almost 50/50). Very low crime as compared to other rural areas in Southern California.

Type: Residential Townehome. 3 Beds. 1.5 Baths. 1400 sq. foot.

Asking Price: $136000 (I intend to give a low ball offer of $100,000 or less and hopefully meet in the middle)

10% Down: $13600, HomePath Loan

5.25% Interest

Closing Cost: $3000 (Most likely less than $2000)

HOA: $250/Month

Monthly Loan Payment: $676

Monthly Property Tax: $111

Monthly Insurance Expense: $90

Total Monthly Expense: $1127

Rent in the area for a 3Bed / 2Bath is around $1475-$1600. I am confident I get can the place rented for about $1450 - $1500 after some upgrades.

Upgrades: Kitchen (Tile flooring, cabinets, counter tops, SS appliances). Replace carpet with Laminate. Bath (Tile flooring, vanity (2), possible shower/tub). New interior paint. Total renovation cost may well be under $18K and that is with a 20% markup for “in case” situations. I could probably finance this renovation cost into my mortgage loan.

With the 50% rule, I'll only be making a measly $161 per month.

There are not a lot of comps in the area, but most of the town homes in the area are priced between 200K-164K without the upgrades I intend on doing. So there is definitely potential upward equity after renovations.

My strategy is to rent and hold, but I'm starting to think that I could probably try to do a lease option instead. Please let me know what you think. Any suggestions appreciated.

[Aaron Montague]

does your interest rate take into account your PMI payment?

You need to add a monthly expense for capital expenses. I use a minimum of $150/month.

I don't see a property management or vacancy expenses. You need to think about both of those. 8% for vacancy represents 1 vacant month per year.