Is this a good deal?

Question

Purchase price 70,000
3bed, 2.5 full/half bed. 1447sq
Value110,000

Rent 1050.

Brendan J. · Answer

What on earth is this Joel? Why are you putting his $5,000 upfront rehab costs into a cashflow equation? Wouldn't it be better to use it as an acquisition cost in calculating the cash-on-cash return?

$1050 / 2 (50% rule for Operating Expenses) = $525
$525 - $307 (Mortgage payment @ 5.75% for 30 years) = $218

This is estimated cash flow.

$70,000 purchase price

$17,500 (25% Down)
$5,000 rehab expense

$22,500 intial cash outlay

$218 * 12 = $2,436 annual cashflow after subtracting HOA of $180
$3,850 estimated equity gain via appreciation @ 3.5% (Speculative)
$700 of debt payment via principal

$6,986 Profit Year 1

31% Cash-on-cash return Year 1 (This is throwing out closing costs on your mortgage, but you get the idea here. You can go back in and change the numbers accordingly)

Joel Owens · Answer

Rent 1,050 x 12 =

12,600 potential gross income

180 yr HOA (sounds low at 15 month)
1,973 Taxes
5,000 repair year 1 CAPEX

5,447 divided by 12 = 453.92 monthly

The key is the appraisal is most likely inflated along with the rent and the repairs needed are in most cases understated.

Underestimated CAPEX could crush your cash flow.

Sounds like a deal to look into further.If you have to get a loan the money starts getting really tight on this deal.

Sharad M. · Answer

How do you come up with cash flow of $296/mo?

Mitch Kronowit · Answer

Hmmm, I'm not familiar with the Memphis, TN market, so maybe somebody else can advise you. If this were in SoCal (outside a war zone), it would be a great deal.

Billy H. · Answer

Also there is a 180 per year HOA fee.

Billy H. · Answer

Mitch,
        I plan to hold it for long term.

Billy H. · Answer

This is what i'm being offer. This is in Memphis, Tn

Sale Price $70,000
Tax Value $109,400
Appraised Value $110,000
Rehab $5,000
Est Rent $1,050
Est Monthly cash Flow $296
Est ROI 100%+
Annual Taxes $1,973
Sq Ft 1,447
Year Built 1996

Mitch Kronowit · Answer

What do you plan on doing with it? Does it need any repair to get that $1050/month? What is the $110k value based on? Lastly, WHERE IS IT?