Your opinion on this deal?

Question

Hey guys! After analyzing deal after deal in the Maryland market, I finally found a potential deal. Let me know what you think and would you take this deal???

Purchase Price: 70k

Down Payment + Closing: 19K

Mortgage: 56K

Interest: 5%

Vacancy, Maint, Cap Ex, Insurance, Taxes, P&I: $635

Rental Income: $850

Cash Flow after expenses: $215

ROI: 14.05

Would love to hear everyone’s opinions as I continue to learn!

Account Closed · Answer

@Dominique Ellis Hi Dominique, looks like a potential candidate. Some thoughts - are you planning to self manage the property? If not you'll want to budget for 8-10% of rent for property mgmt fees. Are you paying any utilities? You'll need to factor those in as well if applicable. Any costs to get it rent ready?

What % did you put for vacancy, cap ex, maint?

Best of luck!

JC Cole · Answer

What’s the location of the house?  I ask because there are markets in MD that would be in the realm of that cost and breakdown, but higher rents which would lead to more cash flow.

Sam Lewis · Answer

There is a solid difference between ROI and CoC return. I like to look at CoC since it is the money that actually ends up in my pocket. ROI typically includes principal pay down, appreciation, among other magic numbers that I can't access.

Assuming you rented the property the day after you purchased, your 1 year CoC return (net rental income/total cash invested in one year) would be  = $215*12/19000 = 13.5%

This is an OK deal. I don't like how close your rental income is to your monthly costs. I always aim for the 50% rule. One property I have rents for $1750 and I net about $750, so I'm almost there.

Potential alternatives:

• Increase the value of the property somehow to command higher rent, and possibly build this into your loan. With 19K as a bundle of a down payment + closing costs it sounds like you are going about a 20% down conventional loan. Some lenders can build an additional 5 or 10K construction/rehab budget into the loan, but note this typically adds 1-2 weeks to closing
• Use a 3% owner-occupied FHA loan and live in one of the rooms as you either fix up the property, or decide to rent out rooms immediately.
• Another option would be to find another deal that may provide a better CoC return : )

Dominique Ellis · Answer

@Justin Schreibeis thanks for the reply! Yea so I planned on self managing the property. Definitely needs so updating and touch ups. Based on the looks of things I wouldn’t expect more than 7k.