Planning on doing an owner-occupy with either a conventional or FHA loan for a condo in a 3-4 unit building. Great school district, close to the city downtown area, very close to train station leading into Chicago.
- Asking $179,900 (way over priced)
- Offer: $115k (comps suggest similar properties have sold for $111k and $127k)
- Down payment: $8,000
- Taxes: $3000; HOA: $125/mo
- Improvements needed: ~$15k (flooring, paint, cabinets, appliances)
- Vacancy: 1400 (one months rent)
- Maintenance/repairs: $100/mo (budgeting for $1200 annually)
- Potential Rent: $1300-$1500/mo
- Utilities: would be paid by potential tenant
- Insurance / Private Mortgage Insurance: $1500 combined (would hopefully refinance after repairs to get LTV of under 80%)
- Would self-manage to add to cashflow.
Please let me know if I am missing something or if my numbers seem off. Thanks for your help in advance!
Doesnt sound like that great of a deal. You will be in the deal from what I read for $130k with the repairs included. With all the HOA fees, mortgage that includes taxes and interest along with vacancy and repairs, sounds too tight.
What do you see as your monthly cash flow if any?
One big step is getting them to drop the price $65k. Even if they accept that offer I don't like those numbers unless you think it will appreciate in value more than most for some reason. If you will be living there and enjoy it that's different than looking at it for an investment. To me as an investment the numbers probably aren't good enough.
If you like it to live in, it could be a good purchase. In that scenario, I would get an 80% LTV loan to get the best interest rate and make renting it out easier, if that is the exit strategy vs. selling.
I add the cost of management into the expenses to value the property. The fact that you are going to manage will help your cash flow but does not add to the value of the building.
I always look for at least an 8% cap rate and based on $1,500 per month rent I value the property at $104,000 to $113,000. Your total cost on a $115,000 offer is $130,000.
For owner-occupy, should OP include money saved on not paying rent to someone else in his calculations?
@Curt Davis @Bill Jacobsen @Troy Young I inputed my numbers used into the template that J. Scott uploaded for rental property analysis, and came up with cashflow of $172/mo., Cash ROI of 7.96% and 15.23% total ROI. This takes into consideration the following assumptions as far as expenses goes:
- Property Taxes: $2500
- Insurance: 800 (annual)
- Maintenance and Repairs: $1200 (annual)
- Utilities: $0 (paid by tenant)
- Advertising & Administrative: $300 (annual)
- Property Management: $0 (self-managed)
- PMI: $909 annually
- HOA: $125/mo.
$130k all in with price and improvements, I would charge rent of $1400/mo. when I decide to move out after a year. This also takes into consideration the assumptions as stated in the original post above. Once the LTV gets under 80%, obviously PMI would go away as well.
I expect you to be able to make money on this deal but I think you can find a better ROI. If you have been looking and this is the best fit for you then do it. Even if you make $200 a month on this it's going to take a very long time for the tenant to buy it for you. I've had different tenants buy the house for me after 3-4 years (repairs, taxes, ins. etc. included). To me it's a lot of money tied up for a long time. But If you make good money and values go up you can save up or refinance to keep buying. I just don't want you to put everything into this one and not be able to move on the next one for a long time.
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