First Deal Sanity Check

5 Replies

Hello BP,

I'm thinking about pulling the trigger on my first real estate purchase but want to have a second or third set of eyes to make sure I'm not missing anything big. I'm currently 25, living with my parents rent free, and make around $60k per year working at a B4 accounting firm. My plan was to buy my first property while I'm living rent free so I've got a cushion in case something goes wrong and then once I get a handle on landlording and save up enough cash for a second purchase, house-hack through an FHA or low % down conventional on a duplex in my area. My criteria for my first purchase is a buy and hold cash flow play getting more than $200 per month, greater than 10% CoC return, under 100k purchase price, B and C class neighborhoods. The area i'm planning on investing in is 45 minutes away from where I live now.

Here are the numbers on the property I'm considering:

https://imgur.com/a/kxHRR

Rental Income - I looked up various comparables listed on Zillow and craiglist to the property and found the rents ranged from 850-1250. I went with a conservative $900 and also posted a fake craiglist and Zillow ad yesterday at $900 to see if it would generate any interest and I've already got 3 people asking to go see the property.

Vacancy - Estimated 10%

Property Taxes - estimate of $770 yearly taxes pulled from the Sherman CAD website for this property

Property Insurance - I estimated $1500, am waiting back for a quote from an insurance agent that I will get back at some point today.

PM Fee - I will be self-managing but included an 8% fee in the model based off of the PM my family uses and the fee he charges per unit they have.

General Maintenance - 10% estimate

Mortgage payment - I have estimated this amount from a lender I have been in contact with and based off of my credit score and other information.

Capex - 8% of rental income I will set aside and reserve but I've also got other cash in the bank to take care of any other unexpected large items in the first year or two that come up. Will possibly refine this once I go look at the property and see how much longer till the bigger items (roof/HVAC/heater) need to be replaced.

Am I missing anything here? I found through my realtor on MLS

And as far as next steps go - I plan on going to visit the property with my realtor to see if the location is okay, submitting an offer, and then getting an inspection done with a contractor there so I can see if anything is wrong with the property and how much it will cost to fix. Anything else I'm missing?

Thanks in advance for your time/help!  

Updated 11 months ago

Update - My capex number was being added back in and not taken out so the true monthly cash flow is estimated at $128 per month.

To prevent CapEx issues in the future, you can use the BP tools, though I think you can only use them each like 5x if you're a free member. I wouldn't think this is a very good deal if you are only going to cash flow $128. Not a BAD deal, but I think you can do better. Also, does that include like closing costs and such? The tools include that. But you covered a lot of stuff others don't like insurance, taxes, PM, etc. Good job and good luck!

Originally posted by @Jody Schnurrenberger :

To prevent CapEx issues in the future, you can use the BP tools, though I think you can only use them each like 5x if you're a free member. I wouldn't think this is a very good deal if you are only going to cash flow $128. Not a BAD deal, but I think you can do better. Also, does that include like closing costs and such? The tools include that. But you covered a lot of stuff others don't like insurance, taxes, PM, etc. Good job and good luck!

 Thanks for th response Jody. 

I have already run out of my 5 free trials on the BP calcs unfortunately.

It does not include closing costs so that would bump down the CoC% substantially and I will add those into my model.

I’ll keep looking! 

I'm sorry you used up your free tool uses, but I'm glad you actually used them rather than just asking folks for the answers.  Maybe consider getting a short term membership.  Do they do that?  I can't recall...and I just got my PRO membership like 2 days ago.  lol  Well, my excuse is I have a brain injury from Iraq, so that's what I'm going to claim for why I can't remember that recently.  lol  Anyway, I'm impressed you're doing the figuring without the tools!  Good luck! 

thank you. I’m actually an accountant and love spreadsheets so I don’t mind putting in the time to refine and set one up :)

NOT ME!  I hate number, math, etc.  I bought the PRO membership even though I don't plan on buying any more property until next year just to be able to easily practice.  No way am I doing that by hand!  lol

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