Is this a good first deal?

[Ryan Nodurft]

Hey Guys,

I am just getting started and am hoping for some input on my first potential deal. 

It's a short sale that the seller's lender has approved for $90,000. ARV is $125,000. The seller is paying $3000 in closing I'm expecting a $15,000 rehab that I will roll into a renovation loan. I have put a $250 deposit, and the inspection is set for early next week.

A 3 bed/2 bath of the same size rents for $1200 to $1300. Since it's a 4/1 I think I'll have trouble getting the top end. There is an area off of the master that I could add a half bath that would help get there, but I have to get a good estimate. I think I could add a Saniflo macerating toilet and sink for around $5000, but the hassle for issues & repairs might be a bit much for my first property.

The numbers seem to be a bit thin. Should I walk away? Is there anything I can do to negotiate a better price at this point?

Here are the details:

Address: 34900 Gravesbriar Dr, Denham Springs, LA 70706
Type: House
Beds/Baths: 4/1.0
Square Footage: 1,311
Lot Size: 13,503 sq. ft.

* Purchase & Rehab *
Purchase Price: $105,000 ($80.1/sq. ft.)
After Repair Value: $125,000
Purchase Costs: $1,050
Rehab Costs: $0 ($15,000 Rolled into loan)
Down Payment: $21,000
Total Cash Needed: $22,050

* Financing *
Loan Type: Amortizing
Loan Amount: $84,000
Loan to Value: 80%
Loan Term: 30 Years
Interest Rate: 5.5%
Monthly Payment: $477

* Cash Flow (Monthly) *
Rent: $1,250
Vacancy: -$125 (10%)
Expenses: -$500 (40%)
NOI: $625
Mortgage Payment: -$477
Cash Flow: $148

* Returns & Ratios *
Cap Rate (Purchase Price): 7.1%
Cap Rate (Market Value): 6%
Cash on Cash Return: 8.1%
Return on Equity: 4.2%
Return on Investment: 65.1%
Internal Rate of Return: 65.1%
Rent to Value: 1.2%
Gross Rent Multiplier: 7
Debt Coverage Ratio: 1.3

[Aaron K.]

A 7% cap rate on a purchase price of $105k is not that thin in most parts of the country, sometimes BP mythologizes numbers a bit.  If you are fairly certain of your rehab numbers then it does not seem bad, however I don't know what you are comparing it to.  As long as it is in a quality area and is profitable that is a good first investment.