Updated about 8 years ago on . Most recent reply
Sanity check on my first deal!
Hello, BP. I'm under contract on my first deal and I'm wondering if I can get some feedback. Everything seems to be good, but I could use a sanity check to make sure I'm not missing something. This is for half of a duplex.
Asking price: $75,000
Offer: $75,000 (Yes, I offered what they were asking because there was a lot of competition and their asking price was way under market value)
ARV: ~$110,000
Down payment: $15,000
Rehab: $5,000
Closing Costs: $2,000
Total out of pocket: $22,000
Rent: $1,000
Total monthly income: $1,000
Expenses:
Mortgage: $313 ($60k @ 4.75%)
Taxes: $100
Insurance: $80
Flood ins: $0
HOA: $0
Maintenance: $100 (10%)
Capex: $100 (10%)
Management: 0$ (I will self-manage)
Vacancy Allowance: $50 (5%)
Total Expenses: $749
NOI = income - expenses = $1,000 - $749 = $251/month cash flow.
Wealth gain = ARV - mortgage balance - down payment - rehab - closing costs = $110k - $60k - $15k - $5k - $2k = $28,000
CoC = 13.7%
So, to me this seems like a really good deal and I'm worried I'm missing something because it almost seems too good to be true. The owner is out of state and I'm wondering if he just doesn't know what it's worth. The house needs some repair - flooring throughout, paint, and a few odds and ends, but nothing major. I've estimated $5k for repairs. I have an inspection next week, but I have a contingency in my contract that let's me back out if inspection isn't good.
Also, I've run the numbers and if I follow the BRRRR method and refinance my capital backout, I'm still cash-flow positive ($136/month) and I now have an infinite ROI and $22k to reinvest.
Thoughts?
Most Popular Reply
Keep an eye on the inspector's report. More often than not I think that is where new investors make mistakes. For instance, I had clients who purchased a house and the husband thought that it would be super easy to do 90% of things. Then he got the contractors in and he found out exactly how much everything was going to cost and was a little surprised. The expenses were more than he expected despite that all of the major systems in the home were in great shape.
I would presume that if you have an absentee owner, there might be quite a bit of deferred maintenance, not just cosmetic fixes.
I might also see about getting a better rate on that loan. Paying nearly 5% interest seems quite high. I'm definitely biased on that end though because I work mostly with ARMs.
Keep plugging away!!! Looks good.