Making first deal. I think it is a decent deal?

Question

I’m 50 years old and have been wanting to invest in real estate for quite some time.  Finally talked my wife into getting a rental property.  My goal is to supplement retirement income and possibly retire a little earlier.

We live in a small town 7,000 to 8,000 people.  But have towns of 100k within 30 to 40 minutes in each direction.

We found a property and close in two weeks.  The deal is $25k cash.  Looking at between $10-$15k in repairs/renovation.  ARV should be at least $55-$60k

Based on comparable rents we should be able to get $600 to $650 a month.  Property taxes currently at $950 a year.  Calling my agent for insurance about $65 a month for insurance.

Putting numbers into the BP calculator I should have positive cash flow.
Everything seems to suggest it’s a decent deal. Just looking for advice. Did I miss something. Any advice or tips on rental property for a newbie. Especially from anyone in similar markets.

Account Closed · Answer

@John Irvin, sounds like a decent deal and low entry market. I agree with @Kenton LeVay's point about accounting for CapEx and repair which it sounds like you're trying to account for. Depending on which items are rehabbed with the 10-15k, it might be worth looking at the expected usable life on other bigger items that did not get addressed at the time.

The other deal at 29k, if it really does have an ARV around 112, could be a great option.

A thought on pulling the equity out: If you do end up putting 15k+ in for repairs, and it only appraises at 55k, there likely wouldn't be much to pull out at 75% LTV, especially once you factor in loan costs.

John Irvin · Answer

Chad,

Thanks for the reply!

I’m looking at doing a HELOC cash out on the first property and putting that money into the second property.  Essentially pulling my cash out.  I would have to get creative with the rehab budget on the second property.  I may wait before plunging into a second property to get my feet wet with the first one.

John Irvin · Answer

Kenton,

Thanks for your reply!  I’ve factored in repair and cap ex at $100 a month.  And I plan to put 8% in for vacancies.

My plan is to pull out all the equity to reinvest.  Another property came up on the market for $29k, with 3 bedrooms, 1.5 baths.  It will need roof, new HVAC.  I have to go look at it for more of the inside work needed

A house 2 doors down that is recently renovated is for sale by owner for $112k.

Kenton LeVay · Answer

Sounds like a good deal to me. You're hitting the 1% rule! Things I'd also consider adding to your numbers are:- vacancy- reserves. Even though you're fixing it up right away, it would still be a good idea to stash a % of the rental income away and hold it in case you need to make repairs

- income tax on the rent. I'd contact a CPA to see what your tax burden would be for your specific situation