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Help on my first potential deal!
Newbie here, would love everyone's input!
Built in 2006, Duplex, each unit is approx 1,600 square feet.
Both units already rented. One is Section 8 at $1,200 per month. The other is $1,150 per month.
$167,500 Sales price, I think I can get it for $160k. So, here are my numbers. Please tell me what I'm missing and why this is not a slam dunk. It certainly appears that way to me!
$160k (Purchase price)
-$40k (25% Down payment)
=$120k
Monthly note: $644 (30 years at 5%)
Projected rent: $2,350
$2,350*50% = $1,175
$1,175 - $644 = $531 cash flow
Thanks everyone!
What about closing costs? I would try and get it lower by what info you provided; very tight 1%
I've estimated closing costs at $2k. Can you expound on very tight 1%? You lost me..
Great cash on cash return.
How did you come up with 2k for closing costs? What about reserves? 1% is what you want to make monthly on your invested capital for at least 12% annual return. Divide invested capital by monthly or annual cashflow
$2k (approx) is what I've been told per shopping my finance options. Reserves are good.
I don't think I can get it for less than $160k as it has been reduced all the way down from $215k over the past 12 months. I offered $145k initially and was rebuffed quickly. It seems the seller needs $160k minimum to pay off the loan.
Is this in Houston? Do you know what the normal cap rate is around there?
It would seem that your NOI is 1175 x 12 = 14,100 if the standard cap rate is 10 you would want to be paying $141,000. I still think its a good deal. I do believe because its a duplex the price will be based more on comps than the NOI.
Eric,
This is in Houston. I don't know the cap rate and I'm not that familiar with the calculation you are referencing.
Also, I might have an appraisal issue as it comes back under $160k due to a multitude of foreclosures close by. However, there is another Duplex which is exactly the same, pending at $199k. So, I'm hoping this raises the comps or I might have to bring more cash to the table.
Thanks for the feedback.
Eric, cap rates are a metric to compare one commercial deal to another in a certain area to see if you are getting a good deal or not. It is generally reserved for the 5 unit and above deals. 4 unit and below are generally valued by "closed" area comps (an appraiser will not be able to use a pending sale).
Having said that, I think this is a great deal. Great cash-on-cash, ROI, and a Section 8 tenant to boot (I'm a fan of those). If you haven't already, pull the trigger.
Cross the appraisal bridge when you get to it (seller may have to lower their price and/or you could bring more cash to the table or a combo of the two-but make sure the numbers still make sense). Keep us posted and good luck!
Sharon
Thanks Sharon. Just found out it is under contract. Inspection Friday, fingers crossed..
Trevor
Trevor,
You could always just bring your $40k down payment here to Indy & BUY a duplex outright that rents for $550 per side...over $800 net per month.
Just a thought!
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#2 New Member Introductions Contributor
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Trevor
Are you working with someone experienced? If not get the free Ultimate Beginner's Guide to Real Estate Investing at http://www.biggerpockets.com/ubg
Two Great reads, I bought both. J. Scott The Book on Flipping Houses, The Book on Estimating ReHab Costs http://www.biggerpockets.com/flippingbook
The local REIA clubs will be a source of good info, support and people.
Section 8 can be more labor intensive, go to IREM.org search for ARM certified property managers with Sec 8 experience. Its usually not good to mix with non section 8.
What is the turnover rate?
Paul
Originally posted by Paul Timmins:
The local REIA clubs will be a source of good info, support and people.
You're welcome to come down the RICH (Realty Investment Club of Houston) club this weekend for a free investor workshop. We also have some focus groups aimed at multifamily investors.
Be sure to take into account the neighborhood you are buying in. Right now many areas in Houston are appreciating greatly so that will help long-term but if you're in Sunnyside or Macgregor park areas you can run into some tough times as a landlord. Good luck!
