1st Deal Analysis

12 Replies

New to the site and want to share the numbers on my 1st rental in Philadelphia.

3 bedroom 1 bath Row Home

Cash Purchase price after closing - 19,500

Rehab costs - 13,500

Total investment - 33k

Appraised Value after rehab - 44k

Cash out refinance - 33k at 4.12% 15 year fixed

Rent yearly (section 8) - 11,160

Mortgage & taxes yearly - 3,732

Insurance yearly - 1,080

Any opinions on how these numbers will hold up in the long run? Currently rented in a 2 year lease. Rent at 930 per month, $923 guaranteed from the housing authority, tenant pays $7 per month. 

By the numbers it looks like a solid deal based on cash on cash return. I have not done any section 8 housing in the past but have always been interested in it. For guaranteed returns from the government like that on a $44,000 retail price is solid IMHO. I know Section 8 is a very niche system and don't know if the headache would be worth the yearly NOI (working with many people for small yearly return per person i.e. headaches). I found the book The Section 8 Bible really informative on this subject, you can find it on amazon. It is very good and made me strongly consider doing section 8 housing in the future.

@Ron J. Some quick thoughts

  • Who will be managing the property?  I didn't see that accounted for in your numbers.  Even though you may start off managing it I would still account for management in your initial numbers in case your situation changes down the road.
  • Also, you can pretty much count on not getting that $7 per month from the tenant.  That has been my experience at least with section 8 tenants.  On the other hand if the tenant does actually pay the $7 per month that is a real good sign.

you might want to do a percentage for vacancy, management ( even if your managing yourself. I mean u should be getting paid too), and repairs.

But either way numbers sound good.  I don't know if you'll see those types of R.O.I. in giving your money to a bank or a C.D. or maybe even stocks.

Thanks @Aaron Carter. I have read both the Section 8 Bibles and feel that they went extremely overboard with their operation. I'm honestly not sure how they kept tenants in their units. Section 8 tenants have the freedom to pick the best available property for them. I don't know too many people who would want to live in the properties they were renting out, with better options available.

Your insurance is nearly double what I pay. You may want to double check your numbers.

@Eddie T. I'm on my 2nd insurance company and have been quoted by 3 different insurers now. My current plan being the cheapest with the most coverage. The problem is the replacement cost vs the property value. They insure the replacement at 170k when value is only actually 44k. My liability coverage is set at 1 million. Do you have any recommendations for cheaper insurance? Thanks

@Ron J.  try  Affinity Group for a quote.  we usually pay between 40-75 a month for similar value property.  You can do either replacement cost or actual value policy.

No affiliation with them other then a satisfied customer.  I also like the fact that they bill monthly.

@Ron J.

 Im In NY so the company I use may not cover your area. I have replacement cost on 3 properties for 190k $590 - $600 for the year. Your better off finding an insurance broker in your area who could find the best fit for you. Also ask local landlords who they use.

Originally posted by @Ron J. :

New to the site and want to share the numbers on my 1st rental in Philadelphia.

3 bedroom 1 bath Row Home

Cash Purchase price after closing - 19,500

Rehab costs - 13,500

Total investment - 33k

Appraised Value after rehab - 44k

Cash out refinance - 33k at 4.12% 15 year fixed

Rent yearly (section 8) - 11,160

Mortgage & taxes yearly - 3,732

Insurance yearly - 1,080

Any opinions on how these numbers will hold up in the long run? Currently rented in a 2 year lease. Rent at 930 per month, $923 guaranteed from the housing authority, tenant pays $7 per month. 

Congrats! Looks like a very typical Philly number deal.  Numbers is likely to hold up (since hard to fathom Section 8 will drop in rent).  A more important question is: Can you property manage properly?  What's your gameplan here?

@Bob E. Thanks I will definitely look into them and see if they can do anything for me.

@Eddie T. 500-600 a year sounds great. I just have not been able to find a quote like that yet.

@Che Chiu Wong So far so good with the property management. I live rather close about 20 mins from the property. I plan on trying to get all my rentals in that same general area to make it easier. If the time comes when I feel I can no longer handle managing, or don't want to spend that extra time managing I will certainly look into a management company at that time.

Originally posted by @Ron J. :

Bob E. Thanks I will definitely look into them and see if they can do anything for me.

Eddie T. 500-600 a year sounds great. I just have not been able to find a quote like that yet.

Che Chiu Wong So far so good with the property management. I live rather close about 20 mins from the property. I plan on trying to get all my rentals in that same general area to make it easier. If the time comes when I feel I can no longer handle managing, or don't want to spend that extra time managing I will certainly look into a management company at that time.

 Great to hear that.  Better to plan ahead.  Based on personal experience, it's much easier if you have someone (or multiple people) around you to help you, "to be on your side".

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