My first RE purchase... What am I missing?

[Jai Lim]

Hi BP. I'm looking to put in an offer soon on my first property and the numbers seem really good... am I missing something in the calculations? Is there something I haven't thought of? Any help is really appreciated.

Property is on market for $170K, single family residence.

I found a mortgage that requires 15% down but am using 20% down in my calculations.

It needs a rehab, I'm estimating $20-30K, using 25K in my calculations.

Similar homes in this neighborhood average around $250k.

Rentometer.com says average rent is $1700, I used $1500 for my calculations.

I included monthly expenditures: Mortgage $676, vacancy $150, Property Tax $125, Insurance $67, maintenance cost $84, misc cost $17. This gives me a cash flow of $380/month and cash on cash return of about 13.5%.

After rehab, rent it out and pull my initial investment out with a refi or HELOC (will need advice on this as well). Even at a lower than average monthly rent it seems like a really good deal to me. Is there something I am forgetting or missing?

[Scott Passman]

Based on your numbers the spread seems pretty solid.  One thing you seem to be missing is no budgeting for capital expenditures.  Also, are tenants going to be paying all utilities?  The mortgage seems a bit low, but I also don't know the exact terms of your financing. When I ran it through my analysis at 20% down with the taxes and insurance you provided at 5% interest it came out to $917/month compared to the $868 you provided. I would also budget for a property manager at 8-10%.  Even if you plan to never use one, it should be budgeted in so that if you life circumstance ever change your mind you will still cash flow.  Make sure your rehab numbers are well verified because that could kill the deal in a hurry.