Hello Bigger Pockets,
I always enjoy getting over people's feedback regarding evaluating a deal. Please see my notes below regarding a potential buy and hold property I am evaluating.
4 bedroom/1.5 bath, split level, 1720 SF, built in 1968 on .25 acres in good neighborhood, listed for $119,900 in New Jersey.
Previously sold in August 2006 for $240,000. Going onto auction.com next month actually. I haven't gone through the details of auction.com, if there is a reserve price, how you can finance it, etc.
Anyway, the numbers are more important. Even if I don't get the house, I would appreciate feedback for analytical purposes.
Target price: $95,000
Renovation Budget: $5000
Closing Costs: ~2%
Equity Investment at 10% down (because this was a fannie mae homepath home)
10% = $9592, closing costs at 2%, $1918, renovation $5000, total equity in deal $16,810. I would put in ~$2500, outside investors ~$14,300.
Have interested investors and want to scale rental portfolio so going to do 15%-20% equity of my own and then 80%-85% investor equity at 8%-10% APR.
The projected rent is $1650/month based on comps, with tenant paying utilities.
The real question is why is this house on the market for $119,900 when you could pretty much move directly into it. I could put $5000 through a backyard fence, paint, carpet, and clean up the kitchen. The reason its been on the market for about a year (in my opinion) and the broker I spoke with, is that the house while on a corner lot, is positioned in a weird spot on the lot with a very tight backyard. I think the yard is ok, but most of it on the side.
$1650/month (assuming 1 month vacancy/collection loss) for year 1
Mortgage: $518/month assuming 30 year fixed rate mortgage at 4.25%
Taxes: $4300/annually (could probably appeal lower)
Utilities: $75/owner pays water and sewer
Outside Investor Equity payback: $115/month (estimate)
Net Operating Income: $426/month, $3460/annually
Cash on cash return: 20.58%
2.0% rule: 1.60% (very high for deals I've assessed in NJ that aren't $40,000 run down and need $15,000+ of work)
Unlevered yield on cost: NOI/Total capital cost $3460/$103,138 = 3.35%
Levered yield on cost: NOI/Total equity $3460/$16810 = 20.58%
Could probably refi it after it appraises for more than $150,000+ and get 75%+ LTV, all my cash out of the deal, but then have a higher mortgage payment so less cash. I don't want to over lever.
I know I'm trying a ton into this but just want to hear others thoughts. Thanks.
I dont know your market but if the home needs $5k or less your not going to get it for $95k especially if the value in the area is $240k. Someone will come in and pay cash for it.
Thanks for the response.
The value at $240,000 was in August of 2006 - the peak of the real estate market. So the reason this home is in foreclosure is due to that. Clearly its not worth that in 2014 and being vacant for 1.5-2 years.
Its been on the market for 10 months starting at $189,900 and now down to $119,900. I have another fannie mae homepath home under contract right now and got it for $10,000 less than the listing price, which had also been reduced 3-4 times. So I don't think $95,000 is really unrealistic at all.
Additionally, the point of my post was for feedback on how the numbers look relative to other rental deals people are seeing. The houses surrounding the property are all in the $150,000 - $250,000 price range.
Thanks for the great post Francis Longo, I am looking forward to seeing the responses from other members.
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