Seller to hold back 20% question

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Found a house through a realtor. Would like to know if these numbers work or not. The house is listed at $63,900. Seller is willing to hold back 20%. It's a 2 br prefab that is in good shape compared to the others in the area. There are lots af these in town, several listed from $65k to $69k, but not many selling. I would like to purchase and rent out. Rents on these (2br prefabs) run between $525 and $575. Taxes are $720/yr and insurance will be $360/yr.
How would you approach this? If I offer $63,900 and take the 20% offer the numbers look like this, which I don't think would be worth it.
Payment on $51,[email protected]%/30yrs = $313 (80%)
Payment on $12780@7%/15yrs = $115 (20%)
Taxes and Ins. = $ 90
Total = $518

The property is ready to rent, as all the cosmetic items have been done, and the seller is offering an appliance warrantee(I think the owner is an investor). Additional fixing to get it ready to rent would be under $500(new stove and bathroom fixtures). Considering closing/advertising/holding costs, etc., how much would I offer and how is the best way to approach this situation as the seller is willing to be somewhat flexible. Wish the realtor wasn't involved, and I could talk directly to the seller.

On another subject, I hear about people doing lots of deals, I have been "looking" for several months and have only done one deal(I purchased and rented out a Fannie Mae 1br). Seems to be lots of properties for sale but so many of them are not a "good deal" and I'm forced to pass on them. What is the ratio of looking vs actually purchasing? By the way this is a great forum, thanks in advance for the feedback.

Mike in Washington State.

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Total gross income $575
Vacancy allowance (5%) 28
Non collected rents 28
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Net rental Icome $519

Taxes $ 60
Insurance 30
Management ??
Repairs ??
Utilities ??
______
Total expenses $ 90

Operating Income $429

1st balance $51,120 Payment $313 Due 30 yrs
2nd balance $12,780 Payment $115 Due 15 yrs
__________________________________________
Totals $63,900 $428

Positive cash flow $1.00
Not including repairs or management
Not a good deal! As a rule of thumb you want AT LEAST a 1% monthly rent payment to the purchase price. For a $63,900 house you need a $640 rent payment to stay afloat. 1.5%-2% is even better!

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Thank you, will pass on this one. Thanks for the formula, I will use this on all my deals.

Mike

[Jason Barnett]

Just wanted to pitch in my $.02 and say thanks as well. This seems like a simple and effective rule of thumb when evaluating landlord deals.

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Here's a deal I'm looking at, and it's the basis for my future investment plans. I'm hoping you guys could give it a scrub and let me know what you think... I'm about to close on a small single family home.

Purchase $85k
Repairs $8k (plus holding costs for 5 months)
Misc purchase and selling costs $5k
Tax roll value $107k
Comp value about $108k

Avg days on market about 79 (from memory)

I'm going to FSBO, and see if that works for me. So no selling commission. I figure 2 to 3 weeks to do most of the rehab myself. Plus, about 3 months sitting on the market, and a month to close on it. It looks like $8k to $10k profit is very reasonable. I would be putting in about $10k, but I would about double that at the sale within five months (probably faster, but I like the worst case scenario). Seems to me like a good return in a decent amount of time. What are the thoughts out there? Is only making $10k profit on a house worth it (it is to me, but I'm broke :wink: ) My goal in the next 3 years is to buy and sell one a month, with 4 or 5 constantly on the market. I'm only looking at $10k profit at a minimum (and probably that being the avg). It doesn't seem like a lot when I hear people talking about making $10k on a contract flip, or $40k on some rehab... Anyway, it feels good to lay out my plans and get some good opinions on them. Thanks guys.

[Jason Barnett]

We all have to start somewhere and $10K is nothing to sneeze at. The name of the game is ROI and that's how you determine if a deal is good or not. I won't go into all the details here, but if you do the rehab as you are currently describing it then you'll earn about 30% annualized ROI. As an investor I prefer to go for 15%+ ROI on my investments.