My wife and I are set to close on our first property next month (barring everything goes well with inspection), so I suppose this is more of a reactive analysis request.. Affirmation or regret - right? :)
Quick back story: This is our first property, we just recently married in April and we've been renting @ $765/mo in the city for the last 3 years. Since this is our first property we wanted to buy something that was more turn key and would require less work and maintenance since we are pretty new to the game.
Asking price: 319k
Accepted offer 319k with 7k in concessions for closing.
Financing: Traditional loan with a mortgage broker 5% down 95% LTV.
Interest rate 5%
PITI - $2086
Total cash out of pocket (down payment + our portion of closing est.) $17,000 +-
Tenants will pay gas and electric and we will pay water/sewer and trash. These expenses should be about $150/mo.
Current rental income as is, is $2245. Two of the units are currently rented under value so there is potential to eventually bring it up to $2300.
Our primary goal here for our first purchase was to house hack and eliminate our rent and some utility expenses and we feel like we've got that with this property. The house was a gut job 8 years ago and it's currently in great shape, it's in a great neighborhood in the city and all units are in great shape and recently renovated. We know that this isn't going to be a home run from a cash flow point while we're living here; however, it should help us save about $800/ month extra so that we can buy our first non owner-occupied investment property in the next 6 months or so.
We plan to live here for 12-18 months (as we have to for the loan) and then move on to another house hack either in St. Louis, or back to Dallas where we have family (and do the same thing there.)
When the property is completely rented out the numbers should be as followed :
Rental income: $3150
Property Management: $150 - Low, I know.
PITI: Still $2086
We should be able to cash flow $300-$500/month after we move out and rent this property out. If we're still in STL we'll manage it ourself, otherwise we have a property manager we will use. Since we're getting in at such a low down payment I'm showing a CoC return of about 30%.. For a first property and trying to play it fairly conservative I think we've got a good deal here. I'd be interested to hear others analysis - if it's soul crushing, I just ask you do it with an emoji at the end :).
Updated over 2 years ago
Edit update: I should also include that the whole building is 4500 sqft. Each unit is about 1k sqft livnig space. The two downstairs units rent for a little less because they are shotgun style.
Your analysis looks good to me (except the PM...mine averages about 12%). I see this as a great opportunity for you. Simply being able to live for free, allowing you to purchase a 2nd home down the road makes this a good deal. I would run with it.
Does it have three units or four units?I usually run my numbers assuming I am trying to release it and what it will take for me to re- lease it.
I would suggest to consider these things also and see if any of this would apply in your case -Do you need occupancy inspection? How are you leasing these? Are you using an agent to lease it or you are doing it on your own? Are there any common areas? What about utility cost for the common area? I usually factor in higher vacancy rate? I would suggest to use at least 12 - 15% to be conservative. Because once tenants move out it will take time to get it rent ready and it will also take time to get it leased. The time to lease will also depend on the timing of the year.
Hope this helps, Congratulations on your first deal, Happy Investing !
@Frankie Woods Thanks for the feedback! I appreciate you taking the time to review the deal!
@Himanshu Jain It has 4 units. We'll live in one for about 12-18 months and then we'll move out and rent all four units. 3 Units are currently occupied with good tenants at a decent rate. Occupancy inspections will needed for re-leasing; however, we are good with all units currently. We'll be doing the leasing on our own currently. When the time comes will use online services to market the units. There is really no common area except the backyard, which I'll be taking care of since I enjoy it, and i'll be living there.
Good feedback about the higher vacancy rate! I appreciate you taking the time. I also listened to your show on the podcast once I saw your signature. I really like the way you run your business! A lot of good information in there from the management side. Thanks again!