Help me adjust my expectations - first deal pending

[Jack Cottrell]

I'm a complete noob. I'm planning to put in my first offer on my first rental on a SFH in Kansas City in the next day or two.

$140k offer

8% interest rate

20% down

8% management fee

5% vacancy

5% maintenance 

5% cap ex

I haven't gotten insurance costs yet but it's been suggested that I plan for $2k per year. 

Once I plug in all those numbers, I'm pretty close to breaking even. I have the ability to put 25% down or more to increase cash flow. I just want some outside eyes to help me understand if this deal is what I should expect to find as I build my portfolio.

I plan to buy and hold long term. I am expecting to do 3-4 deals per year until I get to 20 properties or so and then snowball the debt so they are all paid off by retirement. 

Am I ok with this plan to ride up the appreciation, mortgage pay down and rising rents? Or is this type of deal that you savvy investors out there would scrap and try to be more aggressive? Any thoughts are appreciated!

[Nicki Thiessen]

I would be happy to talk with you about our property management if you are still looking. Most of our owners / investors are out of state and several in Colorado as well. Make sure you are working with a Realtor who specializes in investment properties because it isn't rare to think the property is rent ready and then it isn't. Unfortunately, we see that a lot. We are happy to help our investors who are growing their portfolio and work with their Realtors. We might even go out to a property prior to you purchasing and give you a scope of what will be needed to make it rent ready so you can make a good decision.  At minimum we can give you accurate rents for the area to do your analysis. 

As an investor (and previous Appraiser) myself, I have a little different way of looking at the vacancy, maintenance, and cap ex. Without doing a deep dive explanation on this forum, I will say that everyone can play with numbers to create whatever picture you want. Those numbers are arbitrary unlike taxes and insurance and they vary based on age, condition, area, landscape, PM, and other things. Yes, you have to consider those expenses and I'm not suggesting that you don't but why not 3% or 10%? Especially if you haven't seen the property and don't know what the variables are. We manage several properties where the tenants have been there for several years, and there is little maintenance. We also manage properties that have been neglected prior to us managing them and they require more. I'm not saying this is one, but don't miss out on a good opportunity based on arbitrary numbers. However, make sure you have reserves and know the condition of the property in case you have unexpected or initial expenses. I agree with @Gregory Schwartz that as long as your eyes are open, you are asking good questions, you have resources and have surrounded yourself with a good agent and PM, take the leap and learn as you go. I also know and have worked with @Caleb Brown and he certainly can be a good resource as well if you need one. Good Luck!