First Deal 3/1 1100sq ft NWI

[Joe Krow]

Hello BiggerPockets, I am super excited to finally make my first post on a potential deal. I have spent the past 6 months or so acting like a sponge trying to soak up as much advice and information as possible. Now I feel it's time to take the leap and put the knowledge into action and begin really learning.

Here's the deal in question. It is an off-market, 3 bed 1 bath, 1100 sq/ft SFR I found on Craigslist. The house is located in Northwest Indiana just minutes from the expressway and shopping. I spoke with the owner and he is asking 85k. He said he bought it approx 4 years ago and replaced the roof, new carpet, siding, and HVAC. The property appears to be turn-key with little money needing to be invested initially. The owner said he is currently renting to family and he is renting for $1000/mo.

According to all the different websites (Zillow, Realtor, etc) homes in that neighborhood have sold anywhere between 88k-110k. I would conservatively estimate the ARV at 90k. And comparable rents range from 1100-1200/mo.

I plan to offer 78k but have ran my numbers on the asking price of 85k. With this being a turn-key property, my thought was if the numbers could work at the asking price they would get better if I could acquire the property for less.

Purchase Price:       85k

Closing Costs:         1700

Estimated Repairs:   5k (estimated on the high end)

Down Payment:        17k

Loan Amount:           68k

Amortized Over:       30 Years

Loan Interest:           5%

Monthly P&I:            $365.04

Total Cash Needed: $22,700

Monthly Income:      $1,000

Monthly Expenses:

Taxes:  1700/yr =       $141.67/mo

CapEx: 8% = $80

Vacancy: 8% =          $80

Management:10% = $100

Repairs:   5%=          $50

Insurance:                 $70/mo?

Total Monthly Expenses: $886.71

At those numbers I am coming up with a COC ROI of 5.98%.

I ran those numbers based on my worst case assumptions: Paying full asking price, preparing for unexpected initial repairs, maintaining current rent, and just guessing at the insurance.

I believe I could potentially the increase the ROI by increasing rent to 1100/mo, not needing the initial 5k in repairs, and acquire for less. I plan to manage the property myself but still figured management in the figures to account for management in the future. I also assumed a lower CapEx rate due to all the major aspects of the house being repaired 4-5 years ago and my exit stragegy of only keeping the property for 5-8 years.

This will be an entry level rental for myself and I am ok with taking a smaller ROI in exchange for an education. I am trying to hedge my bets, however, and trying to live by Warren Buffets rules: "Rule number 1: Never lose money. Rule number 2: Never forget rule number 1."

I am super excited and look forward to any and all feed back.  

[Adrien C.]

if you want to give me a call, I'll walk you through the details of why these numbers don't sound good to me. I wholesale dozens of properties to rental investors in NWI and the CoC is rough. But call- I have a good thermometer on potential rents and it's ARV. I probably know the owner if it's a CL turnkey too.