Needing some guidance with potential deal :)

8 Replies

Hello BP,

I am in the process of analyzing a deal and need some guidance. The property is in St. Petersburg, FL and is a duplex tenant occupied month to month. Everything in the home has been renovated a year ago and all is updated. 

This property would be owner financed with 15% of the sale price $130,000 at 8% amortized over 30 years making it a monthly payment of $810.

Total rents is $19,200

Water/Sewer/Garb. $1,300 last year
Insurance $1,627
Tax $640

Tenants pay electric, cable, etc. on their own. 

Although I have not analyzed many deals... based on the 50% rule alone with the $810 mortgage payments, the numbers don't appear to work out great.

Hi Amber,

I like to look at everything by month.  So break down the numbers you have into monthly amounts.  Also don't forget to budget for vacancy and repairs.  I didn't see lawn care and other maintenance in there also.

Take it from there and lets have another look.  

HI Amber;

   I agree with Jay.  You need to make very sure you are looking at the whole picture.  Maintenance costs should be included because you always have them.  Will you self manage or hire that done?  Breaking everyhting down by the month is a better way to see the whole picture.  

 If I am reading your post correctly the purchase price is $130,000.  Your going to pay 15% down or $19,500 down. 

Expenses broken down monthly come to

$54 Taxes

$135 Insurance

$109 Garbage, Water, Sewer

Management usually runs 10-15% if you hire it out.  So that would be 160 a month. That would not include maintenance costs which should be explored. 

In that case you are looking at an expense of $1260 a month (not including maintenance) 

Rents are $1,600 a month if both units stay occupied always.  So that leaves $340  a month over and above expenses.  If maintenance costs run $100 a month then you are looking at $240.  

Using your downpayment of $19500 and a yearly before tax ROI of 2880 that brings you a $14.7% return on your money. That is if both units are occupied 100% all year. A simple 10% vacancy rate would reduce your annual ROI to 5%.

For me personally I think those look like some harsh numbers I would have to reconsider.  

Just some thoughts.  

@Amber Scavone

What part of town?  If it's in the city $640 in annual property taxes probably means an assessed value of ~$28k which to me means it's probably in the hood and not worth anywhere near that purchase price.  

Patrick brings up a good point. That tax amount does not line up with the price That sets off a red flag in my book. Robert also brought up good points with remaining rents. Any vacancy or maintenance will reduce you to near zero. Might want to look at a property with a little more room for those unforeseen or uncalculated espenses. Good luck

@Jay Kiehn

 Thank you for your advice. Monthly obviously does make more sense. and maintenance/vacancy.

@Robert BreenRobert, Thank you for breaking that all down for me. It was one of the first times running the numbers so it's so helpful having someone more experienced rerun the numbers. I appreciate you taking the time and your advice as well.

@Patrick L.

 You're absolutely right. Thank you for your advice. 

@Bob Mireau Thank you for your advice, Bob. I appreciate any advice I can get. :)

@Amber Scavone

Conventional financing is not an option? 30-year rate would be cutting your rate of 8 in about half. 

@Amber Scavone

I am also suspicious of the numbers. I think you can safely assume in that area that taxes will be at least 1% of assessed value (if not a little higher). If it is assessed well under 70K that would be a red flag. However, assessed value is not market value. In our market a little farther south we can generally take the assessed value and divide it by .65 to get some idea of market value. That is what I often use as a rough guestimator...then have to pull comps to get at a meaningful substantiated value. So, taking 64K as roughly 2/3 of market value you aren't anywhere near 130K. These figures are more than likely skewed without knowing your tax rate, etc. Did you check the county property records? That will give you some clue.

@Mark Gallagher

 At this time, conventional is not possible. You are definitely correct that the numbers would work out much differently. 

@John Thedford

Thank you for your insight. I did not check the property records but I've also decided not to further assess the property. I appreciate your help as it has taught me a few things I did not know before I had posted. :)

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