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
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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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  • Travis Washington
    OP
    Rental Property Investor · Austin, TX · Member since 2015 · 89 posts · 13 votes
    11y
    Originally posted by @Alexander A.:

    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?

     Financing through Fairway Mortgage Corp and I have solid credit.

    Closing cost I estimated at 4% of the loan amount.

    And the seller of them home has claimed that the roof has been replaced with the last 3-5 years.  Not sure of the other items.

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

    @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-...

     This property is just South of Historic Irvington (about a mile) on the 400th block of Butler Ave

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  • Account Closed
    Investor · Indianapolis, IN · Member since 2009 · 100 posts · 13 votes
    11y
    @Bob Bowling how much to get into a property in Honolulu that is not in a war zone?
    0Reply
  • Account Closed
    New York, NY · Member since 2014 · 36 posts · 6 votes
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    @Account Closed 

    Hey Bob, could you go more into detail on the Honolulu leasehold property suggestion. Pm me if needed.

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  • Andrey Y.
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    11y
    Originally posted by @Account Closed:
    @Bob Bowling how much to get into a property in Honolulu that is not in a war zone?

     There are no war zone properties in Honolulu.

    2Reply
  • Royce Talbo
    Investor · Kaneohe, HI · Member since 2012 · 218 posts · 104 votes
    11y

    @Account Closed

     Yes Bob can you go more into detail about LH. I have not dealt with LH before and every time I consider it the additional cost of lease rent make the numbers not work.  The longer the lease the higher the price with lower rent. The shorter the lease the cheaper it is and the higher the rent. 

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  • Rusty Scott
    Real Estate Broker & Investor · Indianapolis, IN · Member since 2012 · 218 posts · 83 votes
    11y

    As a local Indy investor, I would probably pass on this deal. That's not that great of a price for that area. Just outside of Irvington is a big deal....as in most parts of the city, being "just outside" of a good area means you are in a marginal at best area. 

    I don't look to buy anything in town that rents for less than $800, and $900+ is even better. Particularly when you are looking at a home that is nearing 100 years old. Nothing wrong with older home (I live in one), but deferred maintenance can be an issue. 

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  • Christopher Telles
    Investor · Irvine, CA · Member since 2015 · 373 posts · 205 votes
    11y
    Originally posted by @Jay Hinrichs:

    @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... 

     Apologies for interrupting this thread...

    @jayhinrichs ditto. I'd like to also learn more about your lending offerings for deals in the So Cal markets. Res (1-4 units) and commercial, if you do commercial deals.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Christopher Telles

      Whoa I got ahead of my self.. my lending is VERY niche I am not an open market lender. we choose who we lend to very selectively.. Sorry .. I would not be the one for Socal.

    I would talk to Norris group.. or one of the other established players down there

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    2Reply
  • Christopher Telles
    Investor · Irvine, CA · Member since 2015 · 373 posts · 205 votes
    11y
    Originally posted by @Jay Hinrichs:

    @Christopher Telles

      Whoa I got ahead of my self.. my lending is VERY niche I am not an open market lender. we choose who we lend to very selectively.. Sorry .. I would not be the one for Socal.

    I would talk to Norris group.. or one of the other established players down there

     But my wife is a Duck, that should count for something! 

    I here you loud and clear, Thanks for the quick reply. Lets connect as colleagues, I'll send you a request.

    0Reply
  • Jason Fender
    Flipper/Rehabber · Honolulu, HI · Member since 2013 · 11 posts · 4 votes
    11y
    Originally posted by @Rusty Scott:

    As a local Indy investor, I would probably pass on this deal. That's not that great of a price for that area. Just outside of Irvington is a big deal....as in most parts of the city, being "just outside" of a good area means you are in a marginal at best area. 

    I don't look to buy anything in town that rents for less than $800, and $900+ is even better. Particularly when you are looking at a home that is nearing 100 years old. Nothing wrong with older home (I live in one), but deferred maintenance can be an issue. 

    @Rusty Scott what are you finding in town that rents for more than $800-$900+? Just multi-units?  

    Thanks

    0Reply
  • Rusty Scott
    Real Estate Broker & Investor · Indianapolis, IN · Member since 2012 · 218 posts · 83 votes
    11y
    Originally posted by @Jason Fender:
    Originally posted by @Rusty Scott:

    As a local Indy investor, I would probably pass on this deal. That's not that great of a price for that area. Just outside of Irvington is a big deal....as in most parts of the city, being "just outside" of a good area means you are in a marginal at best area. 

    I don't look to buy anything in town that rents for less than $800, and $900+ is even better. Particularly when you are looking at a home that is nearing 100 years old. Nothing wrong with older home (I live in one), but deferred maintenance can be an issue. 

    @Rusty Scott what are you finding in town that rents for more than $800-$900+? Just multi-units?  

    Thanks

     Jason,

    No, SFHs. 

    There was some discussion above about Zillow estimates above. I agree that for value they need to be taken with grain of salt, however I do think their rental estimates are as good as anything else, and a lot better than rentometer. I also believe them better than the MLS comps, as such a large amount of rentals don't even go on MLS, but almost always go on Zillow.

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  • Gabe G.
    Greenwood, IN · Member since 2013 · 346 posts · 93 votes
    11y

    Travis,

    I believe we talked about this one in private.

    How far south on butler is it?  Is it south of Washington I am assuming?

    The one we were discussing that I recently purchased, is a good deal north of there on emerson ave. It's out of Irvington proper, but in Irvington and near the park. I thought yours was in the same area. But sounds like you are a good deal south. I believe as you get farther south in Irvington rents, go down a little, as you get closer to Brookville rd(southern limit of Irvington).  If you are outside of the historic district, I think you will do better to look north near the park, all the way up to 10th as home values, and rents, are stronger there, than the southern edge.   As discussed I rented mine for 800, and had strong demand for it.   Given your numbers, I would agree with previous posters, unless you can work down the price(or better interest rate)  133 dollars in cash flow is just ok, and it's not a great area.

    If you could get this deal closer to the 200 mark using the 50 percent rule then it might be worth a go. The area I am in, and the area you are discussing, are just "ok" areas, with yours maybe being slightly worse.  So you need higher cash flow to make up for that risk, than you would accept in Irvington proper.  

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

    @Account Closed

     Yes Bob can you go more into detail about LH. I have not dealt with LH before and every time I consider it the additional cost of lease rent make the numbers not work.  The longer the lease the higher the price with lower rent. The shorter the lease the cheaper it is and the higher the rent. 

    @Bob

    Ditto to what Royce said. Once you factor in the mortgage, the Leasehold fee, and then the HOA fees you are looking at atleast $1600 of monthly expenses with just that, and that's on the low side typically.

    Not to mention banks will not loan on a property which doesn't have a certain amount of years left on the lease and when the are able to finance, the units are still $250K+ at least (and that would be rare).

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