What am I missing? - Rental property in Raleigh

Question

I found a property that I am interested in purchasing as my first rental property.  It's not an amazing deal, but the numbers seem to work.  Can someone double check behind me?

ARV: $68,0080

Purchase Price: $40,000

25% Down payment: $10,000

8% interest (could be a little higher or lower) @ 30 years

Estimated Repairs: $3000

Points: 525 (Unsure about this one)

Monthly Income: $680 (based on history, this could be more)

Monthly expenses: $634 (10% vacancy, $120 HOA, $20 Insurance, $61.20 repairs)

I would plan to refinance, and cash out in 12 months..

I'm being very conservative when calculating the expected revenue, and i'm trying to over estimate the expenses just to be on the safe side... What are your thoughts? Should I provide more information?

Luis Suarez · Answer

@Brent Coombs It was supposed to be $68,000 but I made a typo, and it's based on my own comps.  I didn't even think about the $50,000 but you're right I would have problems refinancing at such a low amount.  A cash purchase might make the most sense at this point.

Jonathan Taylor Smith · Answer

You've found a bank that will provide a 30 year loan on a $40K purchase price? My experience has been anything below $50K or $60K is too low for financing.

Brent Coombs · Answer

Who says the ARV is $68,0080? (That's seems way too specific). Don't trust THIS Lender's value!

If the refi percentage on the Lender's appraisal falls below $50,000 (as 70% of $68,080 would be), most Lenders will likely reject your application for a refi anyway.

You can't get immediate conventional lending, at a much lower interest rate - for the same reason?

That price range would seem to be VERY awkward when it comes to borrowing for it. All the best...

Adam Schneider · Answer

@Luis Suarez  Are you saying that your income on paper is $680 and your expenses are $634, leaving you a cash flow of $46 if nothing crazy pops up? Those numbers don't work. Add that to the insight you've already seen on the post re the challenges of the refi, needing to vet the HOA health, understanding the HOA covenants (particularly related to rentals)....keep kissing more frogs until you find a better princess.

Jeff Kehl · Answer

@Luis Suarez I see the HOA fee there, is this a condo? Be very careful to check out the financial condition of the HOA. Do you have contact info for the HOA? Have you talked to the board members? Are you sure you are allowed to rent it? Some HOAs preclude that or have limits on how many units can be rented.

Look at all of the utilities and how each of them are paid.

What sort of neighborhood is this? Is it safe? How are the schools? Have you talked to anyof the neighbors to see how they feel about living in this building/area?

Not trying to discourage you, the deal might be great but please do your research so your first experience is not TOO bad.

Rashad Brooks · Answer

@Jonathan Smith I have had the same experience trying to find a bank loan for property below $50k. What bank is the name of the bank you are using for this @Luis Suarez ?

What am I missing? - Rental property in Raleigh

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