About to make my first jump. Go for it or nah?

14 Replies

Deciding to go for this deal for a rental use.
Still have no agent to represent me for this as this is my first deal approach.

Duplex 4BR 2BA each

Listed Price: $99,900
2 Tenants currently renting $800 & $750

So using the 50% rule 

Income $1550/ 2 = $775

30 year 10% down (parents sparing me money) with 4.1% interest $435 monthly

$775 - mortgage ($435) = $340 Cash Flow.

Now the area is not the nicest of Atlanta (Fulton county)

No HOA fee

Should I go for it?

It was also renovated and built in 2002

Parents sparing the down payment or floating the note?  You won't be able to get a conventional with only 10% down.  You'll be in the 20-25% range.

What sort of area is it?  You say not so nice.  B? C? 

Right off the bat ~ Numbers look good.

Reno'ed in 2002 sounds good ~ but still at 13 years, I'd check all majors (roof, hvac, water heater, windows, appliances, etc...)

Who pay utilities?  Can you give us an actual expense breakdown?

Have you made an official offer?  I would put in a contingency on seeing leases and running you own approval for the tenants?  A great deal with potentially bad tenants is likely to not end up being a deal at all.

It looks promising from the 50% guideline, but you need to fill in specific expected numbers to see if it really works.

Tenants pay all utilities
class B type area
20% down can be done too. they're just handing the money over to me so I can down pay.
 so that makes $386 monthly making CF $389

I still have to check out the property this week

@Steve M.

still need an agent so I can make an offer on this property.
but yea I need to check out the place still and meet tenants to see how they've been keeping it in shape.

also will need to hire property management but all the other half of income should cover the expenses including property taxes

@Jesse T.

@Paul Ho

On the surface, it looks good.  Dig deep, get all the details and do all your DD and bring us the numbers.  We'll give you a better idea once we have that info.

Originally posted by @Paul Ho :

Tenants pay all utilities
class B type area
20% down can be done too. they're just handing the money over to me so I can down pay.
 so that makes $386 monthly making CF $389

I still have to check out the property this week

@Steve M.

You will probably need 25% down payment for an investment property.  You also will probably need to have your parents on the loan/property if they are providing the down payment - or at the least it will need to be classified as a gift.

Is it a "legal" duplex?

thanks I will do more research.

@Steve M.

@Bob B.

 Yes its a legal duplex

I missed where you calculated taxes, insurance, maintenance, management, etc. Does mtg payment include PITI?

all those expenses is what is included in the 50% rule. the other half $775 is going to be used for those expenses.

I believe that's the whole point of the 50% to "estimate" the expenses putting half of monthly income for those reasons. and taking the other half subtracting the mortgage. Correct me if im wrong. Sorry im still new to real estate @Bob B.

Hi @Paul Ho

Rent Assumptions 

A: Annual Rent Revenue $18,600 (Monthly Rent $1550*12)

B: Vacancy 10% 1860

C: Effective Gross Income = A-B $16740

Opex - 50% Rule 

D. $8370

NOI = C-D = $16740 - $8370

Total Debt Service = $7981 (Downpayment 10% Interest Rate 4% Term 30 years)

Cumulative Cash Flow YR1 = NOI - Debt Service = 8370 -7981 = $389

Cash on Cash Return 3.2%

Cap Rate 8.4%

DSCR 1.0

Overall you will cash flow based on this deal. Is this owner occupied? Any restrictions on the property? Are you buying under your name or LLC. If you are buying in your name you can get lower down payment might be a little difficult. If you are doing 10% you will have Private Mortgage Insurance that will essentially be a fees and won't add to equity. If you are buying under an LLC you will need to put 20%-25% down. Interest rates are going to be hire for LLC 5% range. Typically banks look for DSCR of 1.25 however, since this is 2 units and assuming you will buy in your name you should be good.

Good Luck! 

Azeez K., Real Estate Agent in GA (#360027)