Is this a deal?

Question

I have the opportunity to purchase this investment property:
3bd/1ba/2 car attached garage.
ARV: 85k (verified with recent sold comps)
Reparis: 14k (already has new roof, siding, windows. just needs interrior brought up to snuff)
Asking price: 44K cash
They are open to owner finance for 6-12 months with 20% down
Rents $900
It's a local deal in good school district with a strong rental market.

I would like to buy & hold this one, but I think it could also be a flip.  I'm feeling pretty good about it, but wanted some expert advise from the community.
Let me know if you need additional details.

Aaron Montague · Answer

@Steve Swanson

Unless you need to close immediately, why don't you get conventional financing on the property?  You should be looking at rates closer to 5%, not 6.5%.  Plus you'll only have to pay closing costs once.

Extend your mortgage out to 30 years.  That will put another $118/month in your pocket.  Your tenants are paying for everything, so let them.

Here are the numbers as I see them for your house.  I assumed you rolled the repairs into your loan:

Mortgage Rate 5.00%

Length of Mortgage in years 30

Monthly Mortgage payment $249.09

Taxes $68.33

Sewer and Water $-

Trash $-

Heat/Utilities $-

HOA $-

Cap Ex and Ops $150.00

Insurance $58.33

Mgmt Fee $90.00

Vacancy $72.00

Total Expenses $687.75

Total Revenue $900.00

Cashflow/month $212.25

Cash on Cash Return 14.89%

Mark Bookhagen · Answer

You are right below the "70% ARV guideline," which is good:

Target price = (85 * 70%) - 14 (for repairs) = 45.5 > 44

Side note: 6.5% is pretty high for a 30 year, let along a 15 year...

Steve Swanson · Answer

@Tom Keith 
Home was built in Mid 1970's.  
Taxes: $820
Insurance: $700
For financing, I'd either buy all cash & refinance to 15 yr fixed at around 6.5% in 12 months, or place permanent 15 yr financing at around 6.5% when the owner finance has expired.
It is in the burbs with very similar age, size, & style homes around it.
Yes, I have verified the repairs, & the $14k includes 10% fudge factor.

This is only my 2'nd rental, so I greatly appreciate your input.

Tom Keith · Answer

@Steve Swanson Hello. What is the age of home, taxes, insurance cost, and finance cost prior to and after renting?  Is it a normal home for area?  Have you seen interior to verify the rehab necessary?  Good Luck. Tom