Analyzing this deal: $53K for $750 rent

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Analyzing this deal: $53K for $750 rent

Travis Washington
Rental Property Investor · Austin, TX · Member since 2015 · 89 posts · 13 votes

Greetings BP,

Currently have a property under contract that is a 3/1 on the skirts of an established town.  Below are the numbers:

-Price: $53K

-Recently updated (before listing; turnkey property)

-"Zestimate" at $57K

-Sight unseen but trustworthy Turnkey company has brought it to me and ensured its solid

-Inspection this week to confirm condition 

-Dwn Pmt: 15% down ($7,950)

-Mgt Rate: 5% fixed 30-year

-Estimating $2k for closing cost

-And another $1k for possible repairs following the inspection

-Rent market: $750/month ($800 could possibly be pulled too)

-2014 Taxes were $733 ($61/mth)

-Using the 50% rule I get $750/2= $375. Then minus the PITI I end up with $375-$242= $133 of cash flow.

-Estimating 8% for vacancy loss, 10% for PM, 10% for Taxes and Fees, and 22% for CAPEX…for a total of 50% of income.

-Total initial investment: $11k

-Projected Annual Rental income: $9k

-Projected Annual Expenses: $7.5k

-Projected Annual Cash Flow: $1.5k

-Property is in Indianapolis market just outside of Irvington (for those familiar with the area)

-3/1--1500sqft--additional 1000sqft unfinished basement--2-car garage--built in 1923 

How solid of a deal is this property as a buy and hold?

Is their anything above that I am missing or need to adjust with the analyzation of this property?

And what should a young investor as myself focus on going forward with the inspection and closing?

Thanks for the advice!

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Frank Jiang
Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes
11y

Double check your tax number.  Indy taxes non-owner occupied at a higher rate than owner occupied.  If your original estimate is based on an owner occupied rate, you may be unpleasantly surprised down the road.

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  • Raky Patel
    Rental Property Investor · Houston, TX · Member since 2013 · 46 posts · 7 votes
    11y

    I estimate 9% of purchase price for closing costs which includes insurance for the year. If you don't want to do this you can subtract $1k or so. The way I structure deals is that I have the seller contribute 2% (which I believe is the cap) towards my closing costs. In your situation I would be willing to raise the price to $54k with a 2% contribution towards your closing costs. That should be close enough to net the seller the same amount but it allows you to keep more cash in your pocket. I do all my offers this way. You will be around $12-13k out of pocket on this deal. Your mortgage guy should be able to give you a good idea of the true number. 

    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    11y

    If you are doing conventional 20% down financing which is what I estimate based on your $11,000 investment, I think you forgot to include the closing cost for the financing which I would estimate to be around $4,000 total closing expenses. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Curt Davis

      so curt 10 points for total closing costs... with lenders burying junk fee's in with points.

    makes my 10 point no junk fee deals seem pretty good since they are non recourse and no qualifying .. its all about perception and how the cost are delivered  right ?

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
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    The conventional lenders we usually deal with charge a 2% loan origination fee and the rest is escrowed for taxes, insurance and all the other junk. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Curt Davis

      yup its those junk fee's that add up... and if you cant get a loan for over 4 units then whats the point.. when you can spend the same and we can give you twenty loans if you want.. LOL..  at least that's what we do  every month... those that get fixated on saving 500 but cannot buy another property were is that getting them.. and turn key companies that we help move inventory at double the rate well they like it as well >>>>

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
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    @Jay Hinrichs

    Can you send me a PM of what you offer in the manor of available financing to my end clients who buy from me?  Thanks

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Curt Davis

      sure happy to do so... been doing a bunch for Lorne over the years.. we do about 20 a month... you know the drill.... I find it funny .. when we just put a one time fee people balk. but when they get the huds and end up with 17 different fee's many times they pay more than the one time fee we charge with no junk fee's  LOL... 

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y

    http://www.deptofnumbers.com/rent/indiana/indianapolis/

    Your 50% guesstimate includes t&i so you are understating your cash flow.  The link shows that INDY rents have been flat for 8 years.  Why do you want to buy there?

    1Reply
  • Travis Washington
    OP
    Rental Property Investor · Austin, TX · Member since 2015 · 89 posts · 13 votes
    11y

    Cheap entry market that's stable for buy and holds.  What markets do you suggest?

    @Account Closed

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  • Rodney Kuhl
    Rental Property Investor · Fishers, IN · Member since 2013 · 381 posts · 69 votes
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    @Travis Washington Where are you finding a lender that will allow you to put 15% down?

    0Reply
  • David DuCille
    Residential Real Estate Agent · Tampa, FL · Member since 2014 · 177 posts · 122 votes
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    how bad of a neighborhood is this in that a 1500 sq ft home with an additoinal 1000sq ft basement and a 2 car garage will ONLY rent for $750?  that just seems like craziness to me.  is there opportunity to go section 8 and guarantee your rents?

    1Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y
    Originally posted by @Travis Washington:

    Cheap entry market that's stable for buy and holds.  What markets do you suggest?

    @Account Closed

     If you just want cheap why not buy Honolulu leasehold property?  Tenants will pay the same rent as fee simple.  Cash flow to start and like INDY little appreciation.  The leasehold will likely have cheaper expenses (no vacancy 8%, no management 10%, no HVAC so less capex 10%)  You'll still enjoy the 6% annual rent growth.  

    1Reply
  • Alexander A.
    Investor · Indianapolis, IN · Member since 2015 · 143 posts · 82 votes
    11y

    Assuming your numbers are correct, actually its not a bad deal.  But how are you doing 15% down payment with financing?  And how are you closing costs so cheap?

    Does the house have new roof/plumbing/HVAC/heater?

    0Reply
  • Kirill Chervets
    Investor · Bothell, WA · Member since 2011 · 61 posts · 27 votes
    11y

    @alexander a Can you please PM me or post here your experiences? Thank you!

    0Reply
  • Account Closed
    Indianapolis, IN · Member since 2013 · 77 posts · 5 votes
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    @David DuCille

    @Travis Washington

    Outside Irvington could be a lot of places. Indy is weird in that you can walk through a place that isnt that great and 3 blocks down the road see huge houses with high incomes. You see it a lot when you have to cross large roads or overpasses (it's a mental thing, I guess). Such as Meridian/Illinois/Central at around 46th neighborhood. 

    While, not the worst, just west of the Irvington neighborhood is New York and Sherman st. Which is on the top 6 areas the IMPD and FBI are trying to limit crime.

    http://www.wthr.com/story/26745991/2014/10/09/six-...

    0Reply
  • Eddy Dumire
    Investor · Stafford, VA · Member since 2014 · 246 posts · 83 votes
    11y

    Amerisave looks like they will quote you a rate on an investment property at 85% LTV. It's been a while since I've closed anything with them though so that may evaporate as soon as you try to pull the trigger.

    They also "strongly urge" you to use their own settlement company which I though was pretty shady and obviously a RESPA violation.

    0Reply
  • Frank Jiang
    Investor · San Diego, CA · Member since 2014 · 592 posts · 765 votes
    11y

    Double check your tax number.  Indy taxes non-owner occupied at a higher rate than owner occupied.  If your original estimate is based on an owner occupied rate, you may be unpleasantly surprised down the road.

    3Reply
  • Vincent Crane
    Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
    11y

    The cashflow seems pretty weak honestly. I'd say really look hard for some better deals. Under $200 cashflow for a house isn't strong. You could keep saving though and maybe once you hit 30-40k do a flip and then have some more cash to put down on a property that might cashflow better. A house at 57k should be able to hit the 2% rule and profit $200-400 a month, but in those areas like that, you've got more potential for damage, vacancy, evictions. I don't think this deal would be worth the minimal profit, and likely potential headache

    1Reply
  • Matthew Schroeder
    Investor · Carmel, IN · Member since 2014 · 332 posts · 245 votes
    11y

    There have already been a lot of good comments, but would add the following.

    Regarding your financing plans, recognize irrespective whether you are budgeting 15% or 20%, the loan will be based on market value - which for SFRs, will be based primarily on 'sales comparables'.  As such, make sure that you are comfortable with the comps.  If the comps come in lower in the appraisal than your own estimated market value / purchase price, you may be out-of-pocket a larger amount than you expect.  This is not specific to your situation, but it is something you need to consider.

    Also, just a small point, but for Indianapolis specifically, you can absolutely forget about Z-Estimate.  It is highly, highly inaccurate and often on edge of being ridiculous!  I won't even look at it anymore, lest I might be influenced by what it says.  

    Good luck with your investment!  It sounds like you are being very thoughtful about it.

    2Reply
  • Raky Patel
    Rental Property Investor · Houston, TX · Member since 2013 · 46 posts · 7 votes
    11y

    For non owner occupant in Indy taxes are at 2% of assessed value. Issue is that some of the homes have not been reassessed so in your numbers you need to plan for that happening. I believe they do it every 2 years or so. Also, there are lenders that will do 15% loans provided you have good credit/debt ratios. I am working with one right now for a loan on a rental. 

    0Reply
  • Account Closed
    Investor · Indianapolis, IN · Member since 2009 · 100 posts · 13 votes
    11y

    Irvington, Fountain Square and Hendricks has been overly touted. There are small pockets that are good but not revitalized like they have been saying for years. And appreciation is not happening anymore rapidly than most other parts of Indy. Pretty much all over expect 3-5% appreciation. This is the midwest not West or East coasts. We had no bubble for a reason...no huge appreciation which kind of insulated us. Very solid market for buy and hold but do not lose the focus,IMO Cash Flow is the main goal. Always has been for me at least and I am a full time investor, no other job. I own several in Indy and have opportunities to buy in those areas daily and have chosen not to add that area at this time to my portfolio.

    0Reply
  • Ndy Onyido
    Toronto, Ontario · Member since 2014 · 615 posts · 172 votes
    11y

    @Jay Hinrichs

    Do you finance out of state investors who are non US residents? Canadians with excellent credits? I have  a property in KC Mo and am planning to enlarge my portfolio there. I love the midwest; they are affordable and the rental rates are good.

    Can you send me the details on : [email protected]?

    Thanks

    0Reply
  • Travis Washington
    OP
    Rental Property Investor · Austin, TX · Member since 2015 · 89 posts · 13 votes
    11y
    Originally posted by @David DuCille:

    how bad of a neighborhood is this in that a 1500 sq ft home with an additoinal 1000sq ft basement and a 2 car garage will ONLY rent for $750?  that just seems like craziness to me.  is there opportunity to go section 8 and guarantee your rents?

    I am not sure, David.  I have no idea how to find that out.

    0Reply
  • Travis Washington
    OP
    Rental Property Investor · Austin, TX · Member since 2015 · 89 posts · 13 votes
    11y
    Originally posted by @Matthew Schroeder:

    There have already been a lot of good comments, but would add the following.

    Regarding your financing plans, recognize irrespective whether you are budgeting 15% or 20%, the loan will be based on market value - which for SFRs, will be based primarily on 'sales comparables'.  As such, make sure that you are comfortable with the comps.  If the comps come in lower in the appraisal than your own estimated market value / purchase price, you may be out-of-pocket a larger amount than you expect.  This is not specific to your situation, but it is something you need to consider.

    Also, just a small point, but for Indianapolis specifically, you can absolutely forget about Z-Estimate.  It is highly, highly inaccurate and often on edge of being ridiculous!  I won't even look at it anymore, lest I might be influenced by what it says.  

    Good luck with your investment!  It sounds like you are being very thoughtful about it.

     Yea, Zestimate is very hit or miss in Indy I've noticed…and being there on ground, I could see why.  How long have you been investing in the area?

    0Reply
  • Travis Washington
    OP
    Rental Property Investor · Austin, TX · Member since 2015 · 89 posts · 13 votes
    11y
    Originally posted by @Rodney Kuhl:

    @Travis Washington Where are you finding a lender that will allow you to put 15% down?

     Fairway Mortgage Corp

    0Reply
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