New SFR Analysis!

4 Replies

My realtor sent me a foreclosure that hit the market this morning. He told me there are several showings scheduled today so I'm hoping to take a peek at it as well.

Bank of America, asking 69,900.

I'm thinking of borrowing $60k @ 10% APR from a private lender.

Cash offer of 55k.

$85k appraisal (conserative) would give me 68k cash back.. so after paying closing costs, and the investor back, I would have about 3k.

68k loan, 5%, 30year = $365/month = 4380/yr

Rent = $750/mo = 9000/yr minus 4380 DS = 4620 minus 1000 for taxes and insurance = 3620, minus 10% vacancy, and 10% capex = 2900 cashflow/year or 241/mo.

I plan to self manage, put even if I added another 10% for PM, I would still be above $200 CF.

Is this a good deal?

@James Weikel, welcome to BP, and you opened with a very good question! From other posts I have read around the Forum, my initial thoughts are:

1. You may trouble getting the valuation to come in at higher than you buy it for - because Valuers likely use that sale price as their obvious benchmark. So, do you have ANY funds to put towards it?

2. If your Cap Ex is supposed to include month to month complaints from Tenants to fix blocked toilets, replace broken tiles and sundry other minor contractor call-outs, then I am not sure that 10% is enough average allowance.

3. If you were to deduct 10% for a PM, your cash flow drops to around $165/m, (not still above $200)! 

[Summary: maybe the numbers are too thin to be a deal]? Anyway, all the best...

@Brent Coombs , thanks for the response!

I based my evaluation on comparable home sales in the area. I used $85k as a fairly conservative value. As far as money to put towards it, do you mean to increase the equity point so that I can get it to the point I would need for a refi?

Also, if my cashflow is 2900 (~240/mo) and I take 10% from that, it comes out to ~220/mo. Am I calculating that wrong?

Originally posted by @James Weikel:

@Brent Coombs, thanks for the response!

I based my evaluation on comparable home sales in the area. I used $85k as a fairly conservative value. As far as money to put towards it, do you mean to increase the equity point so that I can get it to the point I would need for a refi?

Also, if my cashflow is 2900 (~240/mo) and I take 10% from that, it comes out to ~220/mo. Am I calculating that wrong?

1. Regarding YOUR funds, yes, can you cover any gap between any refi valuation and paying off your hard money provider.

2. Typically, a PM will charge 10% of your GROSS rent, not your net cash flow (in this case, $75/m). Cheers... 

9000 Total Rent

8100 Gross Rent@10% Vacancy Rate

1000 T&I

900 CapEx@10% Total Rent

1900 Total Expenses

6200 NOI

4380 DS

1820 CF Annual or $151/mon

... is what I come up with. Am I missing something? Perhaps you were taking the percentage from your running sum?

Anyways, I would probably look for a deal with a little more meat on the bone, so to speak. Mainly because, as stated above, you need a little more wiggle room since you haven't accounted for 10% PM or a little more for maint/repairs.