Would you do this deal with the known future CapEx?
I have been analyzing an out of state property (640 sqft SFH 2 bed/1 bath) and am contemplating whether it would be a good deal. Here are the numbers:
Anticipated Sale Price: $44,000
Down Payment: $8800
Closing Costs: $2500
Total Investment: $11300
Immediate Repairs: Minor (2% seller concessions should cover the repairs)
Rent: $725/mo (existing tenant, market value is $750)
P&I: $160/mo
Taxes: $130/mo
Insurance: $55/mo
Mgmt Fees: $72.50/mo
Monthly Income: $307.50
I would put away $150 (20% of total rent) of the monthly income to account for maintenance, CapEx, and future vacancies. This would leave me with a cash flow of $157.50/mo. Although that's not a dazzling number, this deal is appealing to me because the property does not need immediate work. However, the reason I am hesitant is because of the known future CapEx:
-Garage roof (250 sqft) will need to be replaced in 2-3 years: $2000
-House roof (640 sqft) will need to be replaced in 5-9 years: $5000
-Water heater is 5 years old and will need to be replaced in 5-7 years: $600
-Stove and fridge are new but after the current tenant moves out I'd add a washer and dryer: $900
-Exterior paint looks good now but will likely need to be redone within 10 years: $1500
-A few of the windows are old and would likely need to be replaced within 10 years: $1500
So that's about $11,500 of known future CapEx. Now, let's say I plan to hold the property for 10 years. So if I put away $150 every month for maintenance, CapEx, and vacancies during these 10 years, this would give me a budget of $18,000. Since $11,500 of that is for CapEx, this means the other $6500 would be for maintenance and vacancies. That's $650/year.
Is $650/year enough for maintenance and vacancy? (average vacancy is every 2 years in the area).
If I were able to cash flow $157.50/mo, after 10 years, this would give me $18,900 of earnings. Which would be a 167% ROI. And this is before appreciation comes into play. Although I'm not counting on appreciation, if I was a betting man, I'd say the appreciation would cause my investment to at least double.
Would you do this deal or is the known future CapEx a red flag?