Ready to jump into first deal, please provide advice on deal!
I have found a property that I am very interested in and am prepared to move along with an offer. I am a first time investor and have just read a few books and researched this site as much as possible. I am a licensed agent and have a pretty solid understanding of my local market.
Now about the property. The property is a Triplex unit, with a two story single a couple feet away. These are two separate parcels being sold together. It is a rural property, so property is served by well and septic.
I believe the property can be purchased for $175,000. The taxes are $4,200. The Triplex has 1 4-br unit, 1 2-br unit, and an efficiency. The single residence is a large 2 br. When comparing possible rents, the units fully rented should rent for $3,300 per month. Two of the units don't need any work and are rented and bringing in $1,300 per month. The other two units need approx. 10-15k in rehab.
Does this deal seem to be a good deal to pursue. My main concern is having a well and septic system service the property. If either of these systems go bad, that is obviously a major expense. Any other info that I could provide to assist in analyzing the deal? I'd really appreciate any advice that you could provide.
Jake,
While I can't speak for how things are in your neck of the woods, yes, I've heard that septic issues can be costly. I'm unfamiliar with them, but that's what I've heard from people who have them.
Also, here in Georgia, I'm outside Fort Stewart. Some communities that surround it are city-like and then there are some areas that are in the country. The in the country areas are quiet, but I see those areas being more for people who desire to live there long term. It's not a place that alot of renters seek out. It's not a place where you'd have maintenance/service companies at, so repairs would take longer and be more costly. Also, no real management companies that I know of if you're seeking to have someone manage it.
Although some units are rented, I would recommend assessing the demand for rentals in this rural area and how long it would take to find a renter at the price point in your area. Just my thoughts, like I said, you know the ins and outs best in your area, but if you haven't considered these things, please check them all out.
thanks for the reply,
When I say rural, it's surrounded by farms and a couple miles outside of larger cities. I was also concerned about the level of interest a rental in this area would receive. I placed an ad to gauge and received about 20 inquiries in a two day time span. I am not sure if that exactly proves demand, but it did surprise me.
Thanks again for your input and anything else you can think of.
A deal is only good or bad relative to what other options you have to invest in and what your goal is.
Before I invested in anything, I spent 6 months creating spreadsheet to calculate the cap ratio, cash on cash return of every deal that kinda looked interesting in my area. That helped me think about my goals and what kinds of returns were available to me in my area. It gave me a baseline to measure opportunities by. And it helped think generally about whether I should put money into real estate or something else.
Once you collect even 10 of these, you develop your own sense of the goal, and you know what a good deal is, in your hunting area, by your measures.
By my analysis that is a 25%+ cash on cash return, assuming the total cost of buying it and renovating it (count vacancy) is 200K, you put 25% down and you get a 5% interest rate. In my area, that's a buy.
My spreadsheet looks like this. I am really curious how other people evaluate a rental property.
|
target purchase price needed repairs total invested |
| annual income |
|
taxes (1%) maintenance, repairs, vacancy (25%) |
| insurance (.5%) |
| HOA |
| Total Expenses |
|
Income after Expenses |
|
Interest on purchase price |
| Principal on purchase price |
| Total Mortgage |
| Total Expenses (including interest) |
|
Income after Expenses (including interest) |
|
Cash Flow |
| CAP ratio |
| cash on cash return |
I am in the same boat. I have researched flipping and rentals extensively
I have been a general contractor in Arizona, and am now in West Bend, Wisconsin for 38 years. So I have an extensive background in construction but lack experience in starting the deal financially. So what I am wondering is it best to connect with a local real estate agent to get a deal started and possibly set up a long term relationship?