Deal Analysis Sanity Check

[Kurt Smith]

I created a separate thread earlier today regarding buying from wholesalers and mentioned that a local wholesaler had a couple properties that seemed to meet my criteria. I'd like to post some numbers and get feedback from those with experience. Is my thinking sound, and do these sound like "deals" to you?

Background: My plan for now is to buy & hold single family homes. I would be buying these with a conventional loan and 20% down payment.

House 1: Seller's price is $75k. Estimated rehab (for full retail sale) is $30k, ARV is around $135k. This house is occupied with a tenant that has a purchase option for $100k that expires this summer. Current rent is $775. Estimated rent after repairs is $1100. Tenant has already made some repairs to the house, so it would seem they are interested in exercising the purchase option, which would allow me to pocket around $15k after some minor repairs and closing costs. If they don't purchase, I would make repairs to the house (~$20k) to bring rent up to the $1100 level. House is built in 1970's and in a established stable neighborhood.

House 2: Seller's price is $85k. Estimated rehab is cosmetic only, around $5k. ARV is $130k. House is empty and would just require some cleanup, carpet, etc. Estimated rent is $1000. House is built in 2005 and is in a developing neighborhood (mostly wooded lots for sale).

House 2 looks like an easier start for a beginner due to lower rehab cost and newer build, but House 1 looks like it could be more profitable in the long run. Both would bring approximately the same cashflow (rent minus mortgage, taxes, insurance, and management), which I estimate at $450 for House 1 and $350 for House 2. I show House 2 to have a higher Cash-on-Cash return ($4.2k/$22k = 19%) than House 1 ($5.4k/$35k = 15%).

I may be too late to the table to acquire House 2, but I wanted to at least run through the comparison process and get some feedback. Thanks!