Help evaluating a deal! What am I missing?
Hello everyone! We have a deal that we are evaluating and need some thoughts/feedback on what we could be missing or looking at incorrectly. The numbers are great, but there are a few risks involved too.
Looking for thoughts, guidance, insight that could help us make the right decision.
Details:
- Large SFH (6 bedrooms / 5 baths) in a good community with a mix of newer large homes and older ranch style homes
- Comes with a tenant that just signed a 5 year lease for $8,000/month with $300 increases built in every year
- Basically NNN as the owner is only responsible for taxes (~$16,000/year) and insurance (~$300-400/month), the tenant pays for everything else
- The tenant doesn't live there, but lists the property on short term rental sites like AirBnB/VRBO. They do this with a few other properties in the area. Some they own, and some they rent. AirBnB is fully legal in our state/county/city.
- Purchase price would be around $700k, which is equal to the highest selling property in the area over the last 2 years. No appreciation expected so selling in the future would be a last resort exit strategy. We would also lose money renting it long term.
- Weird house layout as it has had several additions over the years. So it is great for STR, but bad for a primary residence. It has been on/off the market for several years and would be difficult to resell due to the layout. Listed by a commercial brokerage possibly because of previous challenges selling on the MLS.
- We had a bad experience with this broker in the past which makes us wary of anything he represents
- Optional HOA in this neighborhood for the community amenities, but supposedly any deed restrictions on this property have expired. If during due diligence we find that isn't the case this deal would be an immediate no go.
Financial breakdown:
Monthly Expenses = $4,775 (P&I = $3,092 ; Insurance = $350 ; Taxes = $1,333)
Monthly Income = $8,000
Monthly cash flow = $3,225 (27% cash on cash, 10.83% cap rate, 2.04 debt coverage)
The return seems to outweigh any potential risks, but we can't help but think we are missing something.
Thanks in advance for your help!