My wife and I are looking to take the plunge into the world of buy and hold real estate investing. Below are the particulars on the property that we currently have in mind. It is a duplex in a decent suburb outside of Philadelphia, Pa.
We are planning to own the property through an LLC to be set up at time of purchase. As for financing, we’re using a HELOC on our home for the 20% down payment and I’ve assumed a 20 year loan at 3.5%. Am I in the ballpark?
Asking price is $197,900, I’ve assumed that we could buy it for $192,000 based on our agent’s conversation with the listing agent.
I figure we’ll put in another $2,000-$3,600 in improvements.
Rents: $2,350 per month
Top Unit: rented through August 2017 at $1,250 per month (prepaid = no worry about collecting)
Bottom Unit: assume it can be rented for $1,100 per month based on Trulia comps with a 2-car garage included and washer/dryer
Monthly Expenses: $650 per month
$80 Water & Sewer
$98 Allowance for vacancy
$141 Allowance for maintenance
Electricity and heat are separate and covered by tenants.
Monthly Mortgage Payment: $891 per month
Assumes 20 year mortgage at 3.5% with 20% down payment
With both units rented, I figure we’ll get just over $800 per month in free cash flow after setting aside money for vacancy and maintenance.
It feels like a screaming deal, but am I missing anything? Other considerations on a first purchase?
Thanks in advance for the collective BP wisdom!
@Robert Niessen congrats on the move in the right direction.
I would recommend on getting the mortgage for 30 years and have a lower monthly payment, as you always pay extra toward the equity if you want.
This way if something unexpected comes up you have an extra cushion.
Best of luck!
Assumed a 20 year am loan because we want to purchase through an LLC and assume we'll be looking at commercial loans.
Congrats on taking the next step! My best to you and your wife (nice deal on the inherited tenants having it prepaid)
I'm from the area and just curious where is the property located?
@Katie Heer , it's in Quakerton.
The deal doesn't look bad. I take it you'll be self managing as I don't see property management expenses. Also is the property newly rehabbed? The allowance for monthly routine maintenance is 6%(All good), What's the budget for Capex?
@Shawn Ackerman , yes I plan to self manage in order to get my "free" education in landlording and property management. Heaters and hot water heaters have all been replaced within the past five years as well as half of the roof. Otherwise, the property looks to be in decent shape. Plan to have a professional inspection done as part of the sale process.
Also, since one of the units is vacant I plan to replace the floors and do some other updates so I feel like 6% for maintenance/capex is reasonable. Do you disagree?
While I am not sure your Landlord education will be completely "free" if you take some of the good advice offered here on managing properties you should be okay. I'm not up to speed on Philly and if the 2% rule is possible but seems like a good first deal. Just for budget reasons I would allow for $200 or so as potential property management in the event you change your mind. I know for me my intention was to manage myself but with the separate W2 job which requires travel paying the 10% ended up being a better option.
@Robert Niessen Your in the ball park. Taxes and insurance numbers should be real numbers not guesses. They are easy to get make sure you use real numbers and not from the seller as his might not be current and your insurance mite be different. 10% property management even if you are self managing. What happens if you move or buy 6 more properties and cant keep up with all of them? 10% cap ex. (Long term Maint). 8% vacancy. That's 1 month per year. If it's in good shape 5% monthly maintenance now the resulting cash flow will be lower but your butt will be covered a little better when times get tough. I use these numbers in my areas. If it cash flows better (maybe no vacancy's for a year or 2) that's just bonus money. Get the rental records or rent roles from the current pm or seller. Verify them! The banks gonna want them anyway. Remember the pm will track income and expenses ( or they should) and that helps a lot at tax time. Always use the longest term loan you can get. Commercials are available at 25 yr amortization with 10 yr locks. Then a small charge for the re- fi at the current rate after 10 yrs. my lender requires 25% down. If you want to pay ahead that will shorten the loan but most investors don't want too much equity (missed opportunity). RR
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