Deal in the works, rip it apart.
Background: I am an insurance adjuster for homes and deal with repairs, making estimates, and contractors all day. Both over the phone and in person.
Deal: My business partner who we will call TP (no not toilet paper), found the deal by conversation with his father in law. His FIL has a townhome with an HOA @ $95 a month. Comps in the area sold within a few days to 2 weeks all for $170k. The deal would be 140k FSBO with no agents (my first concern. I've only purchased primary residences) so no commissions to pay. The rent would be about 1300-1400. 2005 home and it was well maintained. Just saw updated photos today.
TPs sister-in-law has special needs and wants to stay in the home (my big concerns). I know family and business do not mix. TP has been very upfront that we are in the business to make money and if that does not work as a rental for any reason we would sell it and fast.
Rental numbers
| Income: | $1,375.00 | $16,500.00 |
| Mortgage Pay: | $601.24 | $7,214.88 |
| Vacancy (5%): | $68.75 | $825.00 |
| Management Fee (8%): | $104.50 | $1,254.00 |
| Property Tax: | $97.92 | $1,175.00 |
| Total Insurance: | $66.67 | $800.00 |
| HOA Fee: | $95.00 | $1,140.00 |
| Maintenance Cost: | $100.00 | $1,200.00 |
| Cash Flow: | $240.93 | $2,891.12 |
| Net Operating Income (NOI): | $842.17 | $10,106.00 |
If we sold it after a year:
| Return (IRR): | 73.02% per year |
| Total Profit when Sold: | $22,635.53 |
| Cash on Cash Return: | 73.02% |
| Purchase Capitalization Rate: | 7.22% |
| Total Rental Income: | $14,421.00 |
| Total Mortgage Payments: | $7,214.88 |
| Total Expenses: | $4,315.00 |
| Total Net Operating Income: | $10,106.00 |
Assumptions:
140k with 20% down
3k closing costs.
Rip it apart! Or would you do it?