First buy & hold under contract

8 Replies

So excited to have my first property under contract! I posted a couple months ago about a duplex I was examining and decided to stick with a SFH in the Tacoma area. The property I found is a short sale and is in bank review right now, the only bad part is a 3k lawyer fee to negotiate the short sale. It a 3/2 1300sq ft and is located less than a mile from a Pacfic Lutheran University and also near JBLM military base. Here are the numbers I have found as to numbers:

List price: $125000
Down pmt: 20%
SS Fee: $3000
repairs/cleaning: $2000 (clean carpet/paint interior/landscaping)

Rent: $1295
PITI: $810
Vacancy: $100
Maintenence: $150

Cash flow: $235

Is $150 enough/too much for cap-ex on house less than 10 years old? Please critique!

Depends on your long term goals/plans. I personally buy higher class places that appeal to young professionals. They are in areas they are in great areas. We are looking for long term cash flow when we my husband has the opportunity to retire from the military in 15 years. If the building fit my business model. Than I would be happy with these numbers. They barely for the 1% rule  so many people would pass over..

Thanks for the info. Definately a long term buy and hold, I honestly feel with the condition of this house, $100/month would be sufficient long term for capex. Also, I am overestimating my PITI by maybe 30-40 depending on the tax assesment and insurance I choose.

I use $1,000 per year for maintenance and $.67 per square foot for cap ex.  My estimate for maintenance/cap ex. would be about $155 per month.  I would add a cost for management no matter what my plans are.

Good Luck.

Bill

@Spenser Harding 

Congratulations on getting a property under contract! Check out the 50% rule. Over the long term, 50% of your rental income will go toward expenses other than P&I. What's left is your cash flow. We have some rentals in B+ neighborhoods that meet the 1% rule and have been successful, but a lot of your success depends on how well you manage the property and how well you screen tenants. One bad dirty/destructive tenant could set you back months. Now would be a good time to check out Screening Tenants. Good luck and much success!

@Spenser Harding ! Congratulations! What neighborhood is the property in?  Look forward to connecting one of these days.  We're on the hunt, but still don't have anything under contract. How long do they anticipate the bank review will take? We keep seeing short sales and haven't decided how much hassle we're willing to endure (i.e. waiting a year to get an answer might not be for us, if that makes sense).

@Spenser Harding 

Looks like a pass for me at full price.  It does pass the 1% rule, so I ran the numbers.  Your cash on cash return may actually be worse than this because of the $3000 short sale fee to the lawyer. 

I would pay $78400 for this property.  It would then meet my minimum requirements of $150/month cash flow (actual $302) and 15% cash on cash return (actual 15.01%).

Here is how I view your potential purchase:

Mortgage Rate 5.00%

Length of Mortgage in years 30

Monthly Mortgage payment $601.24

Taxes $108.33 (made up, but PITI comes to $810)

Sewer and Water $-

Trash $- (Do tenants take care of the trash?)

Heat/Utilities $-

HOA $-

Cap Ex and Ops $150.00 (this is my minimum)

Insurance $100.00 (made up, but PITI comes to $810)

Mgmt Fee $129.50

Vacancy $103.60

Total Expenses$1,192.67

Total Revenue $1,295.00

Cashflow/month $102.33

Cash on Cash Return 3.67%

@Stacey Olson it is in parkland/spanaway right next to Pacific Lutheran University and JBLM so should have no problem renting it out.  Also, home was built in 2009 so no major maintenance concerns as everything is newer.

@Stacey Olson  also, want to focus on different tenants, we started looking in central/hilltop but there seems to be a lot of turnover and no appreciation.  The short sale will be long but I'll get my 3000 fee back as the house has 40-50k in equity already.  Even though my cash on cash return is small, my total return will be large.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here