Real Estate Agent · Brodheadsville, PA · Member since 2016 · 29 posts · 6 votes
So I've got a deal on my hands and I would love to get some opinions from some more experienced investors.
3 Br 1B in private community. I've estimated the ARV at $60-$70k from properties in the neighborhood. (Every property nearby is extremely similar).
Built in 1969. Needs nothing besides maybe some repainting and cleaning up. Very recently went through a full rehab.
Rents for $950-$1050. Decent area. Lots of woods. Quiet streets.
Owner willing to finance with nothing down. $55,000 at 4.2% interest over 12 years. Monthly payment of about $487.
Taxes and HOA fees run $1,800. Insurance $1,200. Putting aside 10% for maintenance/repairs, and assuming 5% vacancy.
I would be self managing because it is close to me, a very safe neighborhood, gated community with a lot of amenities, and security patrolling, etc. so I would be comfortable with it.
I figured it looks like a good deal but cash flow is a little tight. What are your thoughts?
Saginaw, MI · Member since 2016 · 161 posts · 67 votes
10y
Your monthly payment is 487 a month and all of expenses including insurance mantaince, hoa fees, vacancy, repairs will total about 450 dollars a month leaving you with 63 a month in cash flow. Cash flow is very low but, you have nothing invested making that a 75 ROI! Now im going to tell you why i would jump on this deal all day. because after 12 years the mortgage will be paid off and you will be cash flowing 525 roughly every single month a property you have 0 dollars invested in!!!!! not a bad deal and at the end of the day tenants paid your mortgage and in 12 years you have a house worth more than 90,000 with appreciation owned free and clear.!!!! awesome deal !!!
Saginaw, MI · Member since 2016 · 161 posts · 67 votes
10y
Your monthly payment is 487 a month and all of expenses including insurance mantaince, hoa fees, vacancy, repairs will total about 450 dollars a month leaving you with 63 a month in cash flow. Cash flow is very low but, you have nothing invested making that a 75 ROI! Now im going to tell you why i would jump on this deal all day. because after 12 years the mortgage will be paid off and you will be cash flowing 525 roughly every single month a property you have 0 dollars invested in!!!!! not a bad deal and at the end of the day tenants paid your mortgage and in 12 years you have a house worth more than 90,000 with appreciation owned free and clear.!!!! awesome deal !!!
Millersville, MD · Member since 2015 · 140 posts · 47 votes
10y
Going by your numbers, you would be lucky to break even on that deal. I don't see anything in there for capex which could really bite you on an older home. Maybe try and adjust the terms. $45K with $5K down at 4% and run it out to 15 years. Just an example. As it sits now you have near zero cash flow and a lot of risk.
Investor · Midlothian, VA · Member since 2015 · 980 posts · 823 votes
10y
Both Corey and Jim are right. Cap Ex kills a lot of investors who do not account for it. BUT, if your FMV and condition are accurate you have $5k-$15k of equity built into the property. Any CapEx that popped up could be considered a wash in lieu of your lack of a down payment. I would make sure I had a really good handle on what those capital expenditures may be, though.
But if you are getting into a good property for no money down, that is hard to pass up. You could always refi down the road to lower your payment if you had. Lots of options actually, but you have to control the property first. I would seriously consider it.
Real Estate Agent · Brodheadsville, PA · Member since 2016 · 29 posts · 6 votes
10y
Thank you guys. I can definitely see what you're trying to get across. I do see the risk from low cash flow and I'm leaning towards thinking repairs and cap ex shouldn't be much of a problem for at least a while. The roof, hardwood flooring, windows, gas fireplace, and water heater are all new as of late 2014.
The best thing I think, is that I have a closer working relationship with the owner already as he is my landlord who is retiring, and I have been renting this place from him for the past year, so I definitely know it pretty well. I think I got a good deal on it at $950 per month originally and most rentals move pretty quickly around here. So I'm confident I can get it rented fairly easily.
Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
10y
I normally wouldn't go for the low cash flow, but you don't have any "skin" in the game, meaning low risk. I think with this deal I would try to squeeze out as much rent as I could and have a sitdown with him to see if you could get $100 a month in cash flow. Meaning adjust the purchase price or the interest rate. Wouldn't take much.
Real Estate Agent · Brodheadsville, PA · Member since 2016 · 29 posts · 6 votes
10y
Forgot to mention, also renegotiated slightly to $54k at 4% over 15 years instead of 55k at 4.2% over 12 years. Brought payments down to roughly $400 monthly
Investor · Independence, OR · Member since 2015 · 70 posts · 26 votes
10y
Despite the low cash flow I would buy it. Your new terms help, too. As other people have said it is very low risk, you aren't putting any cash down and you would be able to refinance to get better cash flow, or if you are desperate, you could sell it (for a profit).
I would buy it, rent it for 2 years (so you are considered an experienced landlord and can use the rental income in your debt:income ratio) then refinance into a better mortgage. You should have enough equity not to bring any cash to the table.
Is there anything you can do to the property to get it on the higher end of the rent spectrum? Add a dishwasher? AC? Ceiling fans? Tear up carpet and refinish hardwood floors?
Just remember to save for cap ex. It will come back and bite you later. Consider the age of the roof, appliances, water heater. Is there a breaker panel or a fuse box? Is the electric grounded? Are the windows old, single pane?
A house built in 1969 likely has led paint and asbestos. That wouldn't stop me from buying it, but it will most likely add to any renovation budgets.