[Calc Review] Help me analyze this deal

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Hey everyone, I wanted to get some opinions on this deal I am looking into getting into. It would be my first deal and I would house hack it. I plan to use an FHA 203k loan to purchase the property. The property itself is a 5 bedroom / 2.5 bath SFR with an unfinished apartment in the back that is an addition. The single family front house is currently fully rented to 5 tenants renting out the bedrooms, it brings in $2,200 per month in rent. If I acquire it, ideally I'd get those tenants on longer leases in order for some stability, or increase the rent. I would live in the unfinished apartment in the back (after its completed of course). A contractor gave me an estimate of $75-$85k to finish out the apartment. The property has sat on the market since January 2017-November 2017, then they took it off the market and put it back on in March 2018 for $203K. I offered $130K for it due to the fact that it has sat so long and has never got an offer and the owner lives in another state. They countered at $195K (understandable) but that's still too high for me. I countered at $145K, they didn't take that either though. So I'm considering going to $160K. The listing agent says the seller owes more than $130k on the property and has invested a lot into the framing/concrete of the back apartment, so apparently that's why he didn't take the low ball offer. I have a number I'd like to stay within (purchase + rehab costs .. rehab is rolled into the mortgage with a 203k loan) in order to only have to come out of pocket a certain amount each month. Also, I think the property would be a great rental property after I move out of it because the finished apartment could bring in at least an additional $700-$800 per month. Additionally, it's in an appreciating neighborhood that is turning right now. In 5 years it will likely be a hot neighborhood that's close to downtown.

What do you all think of the numbers? I ran them very conservatively. Max purchase price = $250K ($165K purchase + $85K rehab), 5.5% interest rate, higher property tax rate, and current rental income. The cash flow is about -$500 but that's a lot better than what I pay in rent right now ($1,200). As David Greene said one of his biggest mistakes was, I don't want to confuse being scared with being conservative. I could potentially end up losing out on a ton of money by not purchasing it, as opposed to what I think I'm saving by not getting into the deal. Or I could be wrong and it could be a bad deal. Any advice/tips are appreciated.


@Alex Kamunyo Confirm you don't have to live in the "main house" first. This plan may be a foregone conclusion with an FHA loan. I don't believe you can not live in the main house with an owner-occupied government secured loan that is for your primary residence.

Howdy @Alex Kamunyo

Have you determined what the current appraised value is for this property? And what the new ARV should be after you finish the addition? These numbers are where you need to negotiate the purchase price with the Seller. You are correct to be cautious not to go past a specific amount that makes sense for you. The FHA lender has a maximum loan amount that you qualify for. The deal must stay under that and still be able to Cash Flow after you move out. If it doesn't while living there that could be okay. It definitely must when you move out.

@John Leavelle Thanks for the insight. The current appraised value is $279K. Once the addition is complete the ARV would easily be $300K+. Asking price is $203K but I can get it for $180K at least. The max I qualified for with this lender is $250K (purchase + rehab). Those numbers seem as if the are exceptional. It would cash flow after I move out also.

@Alex Kamunyo

Sounds like you are on top of things. Make sure you let the Seller (his agent) know you are using a FHA 203K loan. There is more red tape involved. And let them know you are limited in what your offer can be (because of the Rehab estimate).

Keep plugging away and good luck.