IS this a good deal investment wise?

Question

Estimated cash you will need at closing 16,342$

Estimated monthly mortgage payments 730$

30 Years Fixed Rate at Interest Rate 5.500%

Home Purchase Price 76500$

The home is a Duplex Upstairs and downstairs In Good Shape in a C Class neighborhood i know very well in a good location would this be a good deal? the home has already Appraised

Frankie Betancourt · Answer

thank you for all the replys and help it means alot to me people are actually giving me all this information from there past experienceses 😁

Heather H. · Answer

Hi Frankie,

Doing your first deal is so exciting, and your numbers look decent on paper. But the sad truth is that (with any deal) you need to rethink your optimistic assumptions, and build in realistic buffers for unexpected repairs and vacancy. I've had two investment properties for seven years that looked like they would net 18% according to the spreadsheets that I very meticulously created. Some years the yields really are that good, some years they are closer to zero (like when a roof and air conditioners need to be replaced - these things happen).

Also, you mentioned increasing rent - having a steady tenant who actually pays their rent is much more valuable than pushing someone out and dealing with a couple months of vacancy for an extra $50/months in my experience. Just food for thought.

Make a spreadsheet with all your expected expenses and play with the values, to see how much your yield would be affected under different vacancy and repair scenarios. Put in impossibly high numbers and see what happens.

This is an exciting time, but don't get overly optimistic - you will have repairs and other unforeseen expenses, but that's part of what makes landlording exciting! Good luck!

Frankie Betancourt · Answer

Yes i will be managing the property myself and no repairs

yes the numbers are correct i posted all the information above.

But the numbers actually look nice coming from some one else so i think i may go trough with these deal Also this is my Very first home purchase as i am a first time home buyer but i will try and increase the rent and see if this works i would just like to get my feet wet and get started. so to speak

Anna Buffkin · Answer

I'd call this a mediocre deal at best.

Assuming the property value is $80k.  I don't believe Detroit is a huge appreciation area, and you are relying on cash flow as the basis for investment.  There is no equity or excess cash flow to trade for capital to do a BRRRR.  With rents totaling $1000- $730 mortgage, you have $270 left for maintenance, vacancy, and CAPX.

I would budget at least 8% of gross rent for maintenance.  My maintenance ran 4% last year and I had virtually no vacancy (this is a fluke and should never be expected).  This year maintenance has run me 10.5% YTD on gross rent and I have filled 3 vacancies.    My maintenance was high due to both vacancy turnover repairs and 1 house built in 1959 made up 1/2 of the issues (stupid old house is out to get me).

I budget 11 months of rent to cover vacancy loss. I can usually fill a unit in less than 30 days, but there are other losses like utilities in my name and minor repairs and extra trips to the unit.  You may have to budget higher if these are your only units.  I have several units and it would be statistically low for all go vacant in 1 year.

1000- mortgage($730) -maintenance hold back (1000*.08= 80)- vacancy ((1/12 * 1000=83) = $107 remaining for CAPX and cash flow.  I don't like to assign a flat rate to CAPX as different properties need different CAPX needs.  My house built in 1959 may have plumbing CAPX needs that my house built in 2002 will not.  You need to evaluate this number for yourself to figure out how much to set aside.

I would pass at just $107 left for CAPX and cash flow; however, are they ways to increase rent? Is the area going through a huge revitalization?

Hope this helps.

Good luck!

Dennis M. · Answer

Maybe in that area it’s good . I wouldn’t pay 80 grand to make 1000 in rent .i can get 1100$ in rent out of 30-35k duplex any day of the week in my area .

Dick Stevens · Answer

How are you getting a 30 year fixed loan at 5.5% interest on a non-owner occupied property with only 15% down?  Are you sure your numbers are right?  Seems unlikely.

Joe Hines · Answer

Congratulations!  It sure looks nice from the outside.  Does it need any repairs?

Based on the info you've provided, at 2 units x $500 =$1000/month gross rent, you'll get about $270/month before you subtract capex and maintenance reserved (insurance and taxes are included in your mortgage and renters pay utilities).  If you calculate those at minimal levels for a building like this, say 5% each for a total of $100/month, you will net $170/month.

$170 x 12 = $2,040 net per year.  If you divide by your down payment of $16,342, you would be earning 12.4% cash-on-cash return your investment.  I'm not an expert in Detroit C-Class, but it seems okay.  I'd worry about reserving only 5% each capex and maintenance on C-Class units.  I could see it easily being more, but you'll have to screen tenants very carefully to help keep that cost under control.  Will you be managing the property yourself?

Frankie Betancourt · Answer

Rent is 500$ up and down Renters pay all there utilities...

Dennis M. · Answer

Well What is the rent on those apartments ? What was the appraisal insurance taxes utilities ???

More info needed bro