Boston MA area deal feedback

[James E.]

What's up everyone - first time posting on DA forum...be gentle!

I'm set to close in early May on a condo in Salem, MA. This may not be a home run but hopefully it's at least an RBI double... what does everyone think? Am I missing anything here that I'm not considering?

ARV: $165,000 - $170,000 (unit above is mirror image and sold for $170 a few years ago)

Purchase price: $130,000 (REO)

Repair est: $5k (contractor coming in on Monday to give quote)

Anticipated rent $1,500 / mo (already have someone interested in the place and will likely move in as soon as renos are completed, so will not need to carry it more than a month) 

P&I at 4.375% and 25% down: $487

escrow: $200/mo

HOA: $75/mo

misc expenses: $100/mo

Netting the above gives me $638/mo cash flow, which is $7,658 annually and 23% return on cash. 

The area is solid - 5 minute walk from downtown / public transportation so expecting low vacancy risk. Will likely try to hold for 2-3 years while the value appreciates back up and save the cash flow, ideally taking the sales proceeds to scale up.

Are there any other investors here in the Salem, MA area? What has your experience been like?

Thanks for any feedback - it's greatly appreciated!

[Ray Hurteau]

What is the scope of repairs? 5k in that part of MA might not get you very far. I'm seeing a payback period of your intial investment of roughly 5 years, assuming no rent increases and 5k is a solid repair figure. Not bad. Is the $100/month for in-unit maintenance/repairs while you're holding it? Are you taking title in your name or as an LLC? If LLC, you need to budget for the annual $520 fee. Are there any past-due HOA fees since this is REO? Typically, the bank only covers 6 months, but you'd have to check via title search or with the HOA board.

If you're able to hold it for a year, refinaince and get cash back, this could definitely be a home run since you'd essentially have most of your initial investment back and then after refi, your cash flow would be $479/mo +/- assuming HOA fees don't increase too much.

One last question: does the HOA docs restrict using the condo (or a percentage of the complex's condos) as rentals?