Buy and Hold investment ARV problem

13 Replies

Hey I have a seller that needs to get rid of this house because she is paying two mortgages its worth $160k and she owes $125k she is willing to do $130k and doesn't want to do a lease option. The rents in the area is around 1400 a month as this is a 3/2 with 1788 sqft would this be a good deal for a buy and hold investor??

@Marcus Wallace

Based off what info you provided...

$130k is roughly 80% of FMV ($160k) which is a decent discount, not the greatest.

Market Rent is slightly over the 1% rule (1.07%), not much over...  Most people like to see 2% but not possible in all markets.

Based off of the $1400/mo rent, using the 50% rule $700 would go out in expenses such as taxes, insurance, vacancy, maintenance and repairs leaving the remainder for debt service and profit.

That would mean $8400 NOI Est. putting your CAP rate at 6.4%. Is that good or bad? dunno what your market dictates or the neighborhood the property is in.

Now for the financing...

130k Purchase Price

20% Down = $26000

Rate 5%

Term 30 yr fixed

PMT = $558

NOI(Monthly) - Debt Service = $142 Cashflow ($1704 Annually)

CoC = $1704 / $26000 = 6.5%

If you would invest $26,000 to buy 56k in equity and  increase your income by $142/month and also grow your net worth a few thousand a year thereafter...  then I'd say its definitely worth looking into.  That would all depend on your goals...  If that meets your baseline for a deal or not is up to you.

There are some people who would consider nothing less than $200 per door...  If that's your requirement then keep on walking or keep working on price or terms.

Either way you have some numbers to play with.

Jeff V

Originally posted by @Jeff V. :

@Marcus Wallace

Based off what info you provided...

$130k is roughly 80% of FMV ($160k) which is a decent discount, not the greatest.

Market Rent is slightly over the 1% rule (1.07%), not much over...  Most people like to see 2% but not possible in all markets.

Based off of the $1400/mo rent, using the 50% rule $700 would go out in expenses such as taxes, insurance, vacancy, maintenance and repairs leaving the remainder for debt service and profit.

That would mean $8400 NOI Est. putting your CAP rate at 6.4%. Is that good or bad? dunno what your market dictates or the neighborhood the property is in.

Now for the financing...

130k Purchase Price

20% Down = $26000

Rate 5%

Term 30 yr fixed

PMT = $558

NOI(Monthly) - Debt Service = $142 Cashflow ($1704 Annually)

CoC = $1704 / $26000 = 6.5%

If you would invest $26,000 to buy 56k in equity and  increase your income by $142/month and also grow your net worth a few thousand a year thereafter...  then I'd say its definitely worth looking into.  That would all depend on your goals...  If that meets your baseline for a deal or not is up to you.

There are some people who would consider nothing less than $200 per door...  If that's your requirement then keep on walking or keep working on price or terms.

Either way you have some numbers to play with.

Jeff V

 Thanks Jeff for the feedback!! I'm a wholesaler I talked to the seller and she has her cousin living in the house until January so I'm a have to follow up with her.  Also her cousin isn't paying the full $1400 so she has to pay on that house monthly also. 

also this is in San Antonio tx 

@Marcus Wallace , I don't think the numbers work for you as a Wholesaler, if it barely makes sense if you were the end-Investor. I doubt the Seller would be inundated with Buyers even at her owed amount of $125k. My 2c. Next...

This would be a good deal if you could get it with her leaving the mortgage in place(sub-to or wrap around mortgage). Investors would like this type of deal, but the down would have to be under 10k. If she is willing to take less, perhaps you could make a few thousand. You would have to get her to realize that she is losing money and you can get her cash now.

Depends on the other expenses that come with the house. But typically yes... 

If she's willing to sell for only $125k:

Initial Rate of Return - before taking repair costs and other expenses (PITI, management, etc.) into consideration of the purchase price

IRR = (12 x 1400) / 125,000

IRR = 13.44%

Even though that's a good number for the initial rate of return, a smart investor is going to take the expenses into consideration in order to determine whether or not it would be a good Return On Investment. But that all depends on the buyer and their preferences, the way they finance their deals, how much they'll want to do on the repairs, and etc.

Originally posted by @Jaelyn Whisler:

Depends on the other expenses that come with the house. But typically yes... 

If she's willing to sell for only $125k:

Initial Rate of Return - before taking repair costs and other expenses (PITI, management, etc.) into consideration of the purchase price

IRR = (12 x 1400) / 125,000

IRR = 13.44%

Even though that's a good number for the initial rate of return, a smart investor is going to take the expenses into consideration in order to determine whether or not it would be a good Return On Investment. But that all depends on the buyer and their preferences, the way they finance their deals, how much they'll want to do on the repairs, and etc.

Lol... Didn't read that right. Should be $130k and IRR should be 12.9%. It's still typically a good IRR. But keep in mind the buyer will take the expenses into consideration.

different approach...pay cash for it and then do a delayed refinancing. If it appraises for 160 you will get 75%, so 120 back. With closing costs you now have under 10k invested in the property. If it still cash flows as people above say, you are making a pretty good cash on cash return, have little money tied up, and some equity built in. 

I love Mikes cash purchase and delayed refi plan!  I'm looking for deals like this in NJ now, not so easy to find....

@Mike Landry

Is "cash-out financing" and "delayed refinancing" the same thing? If not how are they different?

@Marcus Wallace , they say real estate is local, they also say all investors are different. So whether is it a good deal or not really depend on where you are and what you want.

It's probably a good deal if all other houses that demand a $1,400 monthly rent are selling for 160k or higher. You said the FMV is about 160k so 20% discount is a pretty good deal and there are several ways you can make money out of it. You can either buy and hold or just flip it and make a few thousands.

It should be fairly easily to figure out your returns with different exist strategies. Then you can tell if it is a good deal for you or not. For me, I will jump to it all day long.

Originally posted by @Yinan Q. :

@Marcus Wallace, they say real estate is local, they also say all investors are different. So whether is it a good deal or not really depend on where you are and what you want.

It's probably a good deal if all other houses that demand a $1,400 monthly rent are selling for 160k or higher. You said the FMV is about 160k so 20% discount is a pretty good deal and there are several ways you can make money out of it. You can either buy and hold or just flip it and make a few thousands.

It should be fairly easily to figure out your returns with different exist strategies. Then you can tell if it is a good deal for you or not. For me, I will jump to it all day long.

thank you everyone for the feedback I appreciate it.... Im working with the seller on it right now

@David Pena

Hey david. There are many types of cash out financing. I would consider the "delayed financing exception" a type of cash out financing. There is a lot of info here if you do a search but basically you can get up to 75% of appraised value inside 6 months. The trick is finding someone familiar with this that can do it.  There are a few people on this site that can. 

@Marcus Wallace

Id try to wholesale it. If a deal like that came to a close nice neighborhood, id consider it. Worse case, be honest with the buyer and only take a small assignment fee...$1000 or so.  Good luck. 

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