Rental deal analysis in Michigan

[Hilaree Fraly]

Hi!

I’m looking for some thoughts and advice on a deal I am currently looking at. It would be my first bank loan deal with a real estate agent.

I’ve used the BP analysis calculator and ran the numbers.

Original asking price: $59,900

1st offer: $50,000 - felt good about the numbers!

After I submitted my offer, my agent received a courtesy call that the other offer I was up against was at least asking price ($59,900). I have ran the numbers for $60,000 (below). Now, I’m just trying to rethink and analyze as this would require a larger down payment - which, is doable but there are some cosmetic touch ups that need to be done, etc.

Just a new investor looking for some advice!

I know the 2% rule and the 50% rule...

I’m over the 50% and I’m at about 1.39%.

I know some investors see those as general guidelines and focus on one more so than the other, or, just on cash flow alone. This is probably my biggest hang-up...

Numbers at $60,000:

Rental income: $1000-$1100 average (know the area, rentometer, etc)

Total operating expenses: $391 (5% est for CapEx, maintenance and vacancy)

Mortgage expenses: $258

Cash flow: $350

I am able to get a conventional loan for 4.5% interest with 15% down.

[Nathan Gesner]

You run the numbers to determine what price you are willing to pay. That's what you pay.

The "courtesy call" could be a fabricated deal to see if you're dumb enough to jump in and offer full price. It could be a weak deal that will fall through after the inspection or fail to meet financing.

If the property is a good deal at $50,000 then offer $50,000 and stick to it. If it's a good deal at $59,000 then offer $59,000. Just don't offer more than you're numbers tell you to.

And don't believe agents when they give a "courtesy call" to tell you about another offer. In my experience as a REALTOR, that's a lie (or at least a major exaggeration) about 80% of the time.