Austin, TX · Member since 2012 · 9 posts · 0 votes
Hello
I wanted to run some numbers by you all.
Here is what I am looking at.
Home is bank owned due to foreclose -2000 soft
Asking $173k
CMA's for sale put it at $225-250k range at optimal condition.
Lease comps are in $1900-2000 month range.
I estimate 25k in rehab.
My goal is to hold and cash flow.
I am not going in at 173k, but what would you look at in terms of making these numbers work for you?
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
13y
Welcome to BiggerPockets, Ron. I don't love 1% in rent monthly from the whole investment, but I'd make exceptions for great areas. What's the zip or major cross streets?
Developer · Austin, TX · Member since 2011 · 286 posts · 88 votes
13y
I agree with Jon's numbers, but I think an investment at this price point would be better served closer to or in Austin. Though Lake Travis ISD is great, folks are not beating down the doors to get in to that community like they are in Westlake or Central Austin. Additionally, the lake community is not so exciting without a lake :)
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
13y
Originally posted by Ron K.:
My goal is to hold and cash flow.
If this is truly the case then any appreciation must be discarded along with tax benefits and the joys of principal reduction. You should simply analyze things based on cash flow. You should look through Ray Alcorn's article on deriving YOUR capitalization rate to get a more precise figure, but the analysis below should be a good first cut for screening purposes.
Lease Comps assumed to be $2k/month
=> Annual Gross Potential Income = $24,000
=> Rough Estimate Of Annual "NOI" = $12,000
=> Rough Offer At 10-Cap = $120,000
Less $25k in repairs
=> MAO = $95,000
Since this is roughly half of what they are asking I think it is probably a waste of time trying to make a deal work, but you never know.
and read Ray's article. I would suggest using 20% as your equity constant. Your debt constant is something you'll need to work with a broker to determine, but it is likely to be around 6% or so. A back-of-the-envelope calculation at 75% LTC shows the derived capitalization rate to be close to the 10% number cited above.
If you expect some lift in the project to justify paying more then you can price that into your offer, but $175k is way too much to pay IMO.