20% down payment deal analysis

8 Replies

Hi everyone,

I'm thinking about purchasing a small 1,000-1,100 square-feet single family house for $150,000.  I'm going with the 20% ($30.000) down payment and finance the rest through a bank.  The estimate rent is $1,100 per month.  Property tax in the area is 1% of the sale price I think.  After all expenses such as mortgage, property taxes, insurance, etc. would this be a good deal if my aim is 10% cash-on-cash return?  

I'm new at this and it would be my first purchase.  Thanks!

Other information:  The property is located in Sacramento and/or Elk Grove, CA.

@Henry Le  

Need more information Henry.

What are repair costs? After Repair Value? What is interest rate from bank? Amortization Period? What are monthly expenses? Insurance Costs? Any other expenses?

Then we can check it out.

Hope this helps.

Happy Investing!

If I understand your numbers properly, the 10% = $3000 annually or $250 / month BEFORE maintenance, vacancy, and management fees.  These are real costs and should be considered.  I don't know the area, but 8%,8%, and 10% of monthly rents respectively is a decent guess.  That would total $286 and you'd be in the hole $36 / month over the long run.  If you plan to manage yourself, you might do a little better, but you have to account for your time and a PITA factor.  

I'd consider looking for something else.  

Henry,

I have many properties there.  You will not make any money and be lucky if you don't lose any.  Assuming management at 8%, which is standard from the few local companies, 8% for repair reserve, 8% vacancy, which may be a little high, insurance at $700/yr and property taxes, which are more towards 1.25% for Sac.  With a mortgage at 5% a payment would be roughly $644.  That would leave you with approximately $8.48 profit per month, if you don't manage it yourself.

Originally posted by @Erik Hitzelberger:

If I understand your numbers properly, the 10% = $3000 annually or $250 / month BEFORE maintenance, vacancy, and management fees.  These are real costs and should be considered.  I don't know the area, but 8%,8%, and 10% of monthly rents respectively is a decent guess.  That would total $286 and you'd be in the hole $36 / month over the long run.  If you plan to manage yourself, you might do a little better, but you have to account for your time and a PITA factor.  

I'd consider looking for something else.  

HI Erik,

Thanks for the reply.  Yes, the $250 monthly rental income would be after the mortgage, property taxes, and insurance.  I didn't factor in maintenance, vacancy, etc.  

I'll have to carefully analysis this deal again.  Thanks again.

Originally posted by @Terry Hershberger:

@Henry Le 

Need more information Henry.

What are repair costs? After Repair Value? What is interest rate from bank? Amortization Period? What are monthly expenses? Insurance Costs? Any other expenses?

Then we can check it out.

Hope this helps.

Happy Investing!

Hi Terry,

Sorry for not including those details.  I believe the interest rate would be 4.30% for a 30 year loan.  Insurance would be $50 a month I'm guessing.  Property tax is 1%.  I didn't consider repair costs, amortization period, etc.  I will now thought, thanks!

Cheers and happy investing!

Originally posted by @David Hutson:

Henry,

I have many properties there.  You will not make any money and be lucky if you don't lose any.  Assuming management at 8%, which is standard from the few local companies, 8% for repair reserve, 8% vacancy, which may be a little high, insurance at $700/yr and property taxes, which are more towards 1.25% for Sac.  With a mortgage at 5% a payment would be roughly $644.  That would leave you with approximately $8.48 profit per month, if you don't manage it yourself.

Hi David,

Thanks for the great info.  I didn't factor in the repair serve and vacancy.  I will now.  For the management fee, is it usually a percentage of the rental price?  Do some companies offer a flat rate?

Thanks again!

@Henry Le  

Usally it is a % of the rental price, and there are other fees in there as well to think about such as filling the unit with a tenant as well as others, someone with more experience might be able to shed some more light on this.  You can also google search / call up some local property management companies to get an idea of what they run as a cost structure.

I would say the deal looks very slim.

@Chris Vail  

Thanks Chris.  Yeah, I looked at some property management companies in the area.  They don't provide their rates via their website, guessing you'll have to make a call to find out.  I spoke to some investors in Sacramento area, and they're all saying it's getting harder to find deals.  Some are looking out of state.  

This deal does look very slim once you run the proper comps.  Thanks again everyone for the feedback! =)

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