Updated about 5 years ago on . Most recent reply
Help me analyze this deal!
Hey everyone! I'm a new investor looking to make my first deal. I won a bid and am getting an inspection tomorrow.
I own a home in California but have a brother in Arkansas who is able to manage properties for me in a growing college town. A house recently came on market in an area that is blowing up and increasing in value quickly. The house is 95 years old but was recently rehabbed with new appliances and carpet, granite countertops and all. After analyzing the deal, assuming I get $1000 a month for rent, and after putting down 25% on the $160,000 property, it looks like my cash on cash ROI will only be around 2.5% and cash flow is only $93 a month.
The benefits would be appreciation, tax depreciation wright offs, 1.5 acres of land with an easement for a possible future unit addition, family in the area to manage, no rehab necessary, low cost compared to my local market.
I'm also leary about getting into the landlord biz right now given the current state of affairs and part of me thinks holding out in case of a possible recession could be wise. There may be tons of foreclosures in the near future.
Question: Should I take the risk and buy or hold off for a better property that generates more cash flow?
Thanks!
Most Popular Reply
@Zebuel Early I would agree with @Colin Reid on this one. If you're relying on the university to provide tenants, this may not be the year to make the leap.
Secondly, a common mistake first time buyers make in evaluating the cash flow on a property is prioritizing true cash flow over future cash flow. Have you taken into account CapEx and Vacancy? What about estimated maintenance charges and utilities while looking for a renter? They don't show up right away, but they will show up later - you can count on it.
If those charges haven't been included, that $93 is probably going to go negative and sink the deal. If I suspect a seller isn't as familiar with real estate investing, I like to gently share these numbers with them and just inform them that this is how I'm evaluating the deal. This can help you justify a lower price. Good luck!