Townhome 2/2 deal analysis

[Britt Hennings]

2 bed 2 bath townhome located in middle TN in a small retirement geared community. This unit is on the golf course and is in good condition. I’m planning on a $5-10k rehab which would be all cosmetic (light switches, baseboards, flooring, paint)

This would be a long term rental.

It’s an off market deal that I think I can get for under $120,000 because the middleman has been sitting on the unit for a while and has no other offers.

I’m second guessing my situation because the housing market here has plateaued and I don’t want to overpay and have no exit plan.

Here’s the numbers:

Target Price

$100,000

Closing Costs

$7,000

Rehab

$10,000

Monthly Rental Income

$1,400/mo

$16,800/yr

Mortgage

$100,000

30 year

Taxes

$50/mo

Insurance

$100/mo

HOA

$215/mo (trash,water,amenities)

Property Mgmt

$140/mo

That leaves me at $263/mo cash flow without factoring in CapEx and Vacancy.

18.6% COC

10.7% Cap

Obviously purchase price and rental income changes this quite dramatically but looking for a second opinion.

[Tyler Warlow]

I personally would take the time to try and estimate CapEx based on the age of the townhome and then put in an estimate for conservative vacancy in the area. I personally would not examine cash flow without taking into those factors. This is where you can get into those hidden costs that Scott and Mindy talk so much about.

It's hard to really know without knowing your investing strategy. If you are looking to generate flexibility and aiming for cashflow immediately, then this would likely be a near break-even property and not really generate that cashflow you are looking for. If you are aiming to buy and hold while paying off the mortgage until it's paid off, so you just have straight cash flow, you would need to be okay with the minimal cash flow until that point. 

You're exit strategies could be holding it until it's paid off, selling it, living in it, and renting it. Obviously, an oversimplification, but you would need to examine which of these options are actually realistic for the area and if you would be okay with the options that would be available.

Best of luck!