Would you do this Sub2 deal?

13 Replies

This is a 3 bedroom 2 bath house 15 minutes from my house and in a C+ neighborhood. It's currently rented for $925 and I'd keep them in place. The financing is $59,000 for 20 years, the escrowed payments are $660, that includes PITI. The house was built in 1967, so it's an infant here in Pittsburgh and it looks it.

It's being wholesaled and that's who I worked this deal out with, the wholesaler, her good friend is the owner. She wants $7,000 in walking money for herself and the owner to split. 

What do you all think? I think it's a great deal. I'd have the $7,000 paid back to myself in 4-5 years and then it's basically a free house. IDK, thinking I could refi too, in 3-5 years. 

$7,000 down

Take over the $59,000 loan with an escrowed payment of $660 per month.

Rent is $925

@Mike P.
What are you including in your assessment for management, cap ex, maintenance, and vacancy?

I would consider evaluating how much you need to set aside each month for these expenses. If you were to take 25% of monthly rent to cover these expenses your cash flow would be as follows.

$925x0.25=$231.25
$925-$660-$231.25=$33.75 in cashflow

Take a look at these additional expenses in your area and what you need to pull out as reserves for future expenses.

What is the house worth...whats the ARV?

If you factor in 15% for vacancy/maintenance/cap ex you are clearing $130/mo. Which on $7K upfront isn't bad, but if something goes wrong so does your profit.

Originally posted by @Scott Hensley :

Mike P.
What are you including in your assessment for management, cap ex, maintenance, and vacancy?

I would consider evaluating how much you need to set aside each month for these expenses. If you were to take 25% of monthly rent to cover these expenses your cash flow would be as follows.

$925x0.25=$231.25
$925-$660-$231.25=$33.75 in cashflow

Take a look at these additional expenses in your area and what you need to pull out as reserves for future expenses.

 I always assume 5% capex,  5% maintenance and 5% for vacancies. I'd imagine this is way lower maintenance than my other 2 duplex in the area that are 90 and 120 years old.

@Mike P.
Okay, at least you have considered this. I assume you will be self managing the property since you did not use a PM %. If you do decide to use a PM in the future it will kill your cash flow. Something to think about and build in to your evaluations.

As you noted $126/month will return the $7k in 4.5 years. It’s essentially 10% down to acquire the property. Evaluate your metrics and requirements and see if it fits. The property value is a factor but I don’t know if I (personally) would go for $100/month on a SFH.

Originally posted by @Scott Hensley :

Mike P.
Okay, at least you have considered this. I assume you will be self managing the property since you did not use a PM %. If you do decide to use a PM in the future it will kill your cash flow. Something to think about and build in to your evaluations.

As you noted $126/month will return the $7k in 4.5 years. It's essentially 10% down to acquire the property. Evaluate your metrics and requirements and see if it fits. The property value is a factor but I don't know if I (personally) would go for $100/month on a SFH.

 Jacksonville to Honolulu you take the prize for longest distance between markets !!! but at least its warm in both.

although I never did sub too without at least 30% equity and I was buying 200 to 400k props.. if they are low value assets ie under 100k I would want 40% back of market.

Originally posted by @David Hildebrandt :

What is the house worth...whats the ARV?

If you factor in 15% for vacancy/maintenance/cap ex you are clearing $130/mo. Which on $7K upfront isn't bad, but if something goes wrong so does your profit.

ARV is $80,000

Need a little more information but it seems on the expensive side.

Yearly taxes

Condition of house (age of roof, windows, HVAC), hopefully these are all newer since house was built in 1967.

3 or 2 bedroom, integral garage or street parking, etc?

If you want to private message me the address I can let you know more speficifially what I think.

Originally posted by @Eddie Werner :

Need a little more information but it seems on the expensive side.

Yearly taxes

Condition of house (age of roof, windows, HVAC), hopefully these are all newer since house was built in 1967.

3 or 2 bedroom, integral garage or street parking, etc?

If you want to private message me the address I can let you know more speficifially what I think.

 Let me text you the address so you can throw your offer in the ring too. 

Originally posted by @Duc Ong :

Maybe you could BRRRR it somehow

 Good point, or maybe just buy it, and sell it close to retail, but check the selling expenses.  You might make as much in a sell in 6 months, as you would in 3-4 years.  Move that profit to the asset column for the next deal.  That cash flow seems pretty tight for such a large structure.  

Your rent seems low and a good property manager should be able to raise the rent value to compensate the cost of having a property manager and also lower your risk of having bad tenants.

Overall, look at the entire deal and cost in to work your numbers. I think numbers look solid.