Hopeful Deal on First Property

[Nicholas Richard Ray]

Hey BiggerPockets, I'm just under contract for a duplex I plan to owner-occupy and am looking for a little feedback. It seems like a good deal so far from my eyes so I need some other looks to verify.

https://www.realtor.com/realestateandhomes-detail/...

Again, it's a duplex. The bottom level is currently occupied, advertised rent is $650/mo (waiting on lease to review currently). Mortgage expenses are $398.66 (FHA 3.5% Down, 3.5% Interest, 30 Years). Operating expenses are $288.50 with Insurance being the highest cost at estimated $110. Also, I used a lower percentage for vacancy, repairs, and capex at 3%. Those amounted to less than $60. Understandably, most would recommend setting aside more than that, however, I work full-time and am committed to supplementing my investment with my W2 income as well. Especially while living there, I won't have many problems with replacing the roof (which according to inspection may be relatively soon) to protect my investment and my living space. Then not have to worry about that problem for years to come when I move out and convert it into just a rental.

I'm receiving a home warranty by the seller and they are willing to work with us on some repairs around the property that is noted by the inspection. That said, I'm getting it at what the comps my agent provided said it's worth from the area. - $85,000. Closing costs are rolled in as a credit taking my loan to $90,000. I'm not counting heavily on appreciation either, I'll be able to do some updating but just like the comps we got for this I think I'll be limited in the future by the surroundings. It's South City in St. Louis - definitely not a terrible area but not the best one in the area as well.

In the wash the way it looks I'll likely be negative $40-50 per month. So to me living for $50 plus my own utilities while paying down equity with the help of one neighbor seems pretty good. Ideally, I'll be able to lower some expenses hopefully. Then if I do hit vacancy I believe I could update the lower unit and likely get rent up to $700 or more which is not uncommon for 2 bed / 1 baths in the area.

On top of that, I'll move out 2 years down the road (2 years so I gain the landlord experience for myself and to qualify rental income) and start renting out the one I occupied thus putting my cashflow upwards of $550-650.

Any and all feedback is welcome and encouraged. Let me know if there's something I should or shouldn't be doing and if there is some uncommon factors, or even common for that matter, that I should be considering. Thanks in advance!

[Megan Greathouse]

@Nicholas Richard Ray... I agree with @Sung Park. It's great that you're prepared to reinvest some of your W-2 income into this property in the near term. However, you should really be estimating CapEx, Vacancy and Repairs as close to reality as possible. If you're not sure what the reality will be yet, look around for what other investors use as a best guess for that area and type of property. I generally estimate between 8 - 10% for EACH of those expense items. If I can get a property to cash flow even with 8 - 10% for CapEx, Vacancy and Repairs, then I'm interested because I know I've been conservative in my numbers and might be able to manage those expenses down over time as I get better at investing.

You also should make sure you consider how the cost of Property Management will affect your investment. Even if you plan to self-manage it forever, you should factor in that 8 - 10% in Property Management to account for your own time and effort. And my guess is that if you get really good at this, you won't want to self-manage forever. :)

I think you're making great moves to get started, but make sure you don't estimate too optimistically just to get into something. In my short time investing so far, I've realized that I have to analyze 100 deals to find one good property. I'm not saying this property can't work for you... I just encourage you to understand how it might work out with more realistic expense estimates.

Best of luck!