First timer and the cash flow seems too good to be true

[Josiah Horn]

First time investor here, In a few days i am going to look at a propery in Coatesville PA. It is an REO in a B class area listed for 38K, a fixer upper. (2) 2 bed/1bath apartments. Me and my partner who are splitting the Purchase and Rehab costs have a 20K rehab budget; which we believe is enough for laminate, carpet, paint, new countertops, tubs, appliances and probably a new roof if we do the work ourselves (we are handy and going to take measurements to confirm budget). Similar apartments rent around $700 a month in its existing condition, after rehab we expect to get 850-900 per door and we are going to self manage. 58K dollars all in with comps of a rehab project around 100K

Mortgage: 20% down 30 Yr

Rehab: Line of credit 2 yr no interest

Rent: 1700 pm

Expenses: Mortgage 144 pm

Taxes 108 pm

Insurance 40 pm

Rehab Payback (2Yrs) 833 pm (24 months)

Water: 100pm

Repairs/Reserves 200pm

Cash Flow (First 2 Years) = 275 pm 

Cash Flow (Post 2 Years) = 1308 pm

ARE WE CRAZY

[Jeshua Patrick]

Josiah Horn a couple things I would do. I would estimate rehab based on having a contractor do the work. Even if you are handy this leaves you enough cushion if you have to bring in a contractor to help finish or do one unit while you do the other. Also try to estimate the time it would take for you to do the repairs vs a contractor and budget in the additional holding costs incurred by you doing it. Your rehab numbers seem low for two units as well even doing the work yourself.

On the back end, I didn’t see any vacancy or property management budgeted in so you should budget for that as well as being more conservative on your rent by budgeting at what you know the area will support not what you hope it will support. If it still cash flows at the lower number and you get the higher number it will just be a little extra icing on the cake.