What do you think about this deal?

Question

I'm a newbie to investing, and I think I've found a decent deal that has huge potential, but the cash on cash ROI is only 7.51%. So, I wanted to ask the board for an opinion on this deal.

Summary:

• Condominium
• Purchase price 75k
• 1 bed 1 bath
• 612 sqft with an 70 additional sqft (non-heated) sun room area
• Built in 1975, but in great shape
• Located in Charlotte NC
• Neighborhood on the rise (1.2 million dollar homes, and 800k+ million dollar homes for sale and being built on the same street
• School district all 9's

Financing options:

• 30 year fixed at 5.5%
• 10 yr ARM at 4%

Numbers below. Would you make this deal?

Jordan T. · Answer

One thing I'd note is that 1 bedrooms have higher turnover than others.  If it takes you a week or two to do carpet and paint at a turnover, and then 2-4 more weeks to rent it out, you're probably looking at 8-10% vacancy over time, assuming no one ever quits paying or has to be evicted.  2 bedroom units can be a bit easier to rent because they can appeal to single people all the way up to small families.

Raul R. · Answer

Did you confirm the type of loan you're getting??

If majority are Investors in Complex and not Owners Occupied Property may not qualify for Fix Conventional Loan.

I own 2 Condos in Charlotte, I can assure you HOA's will go up and theres nothing you can do about it.. The question is when and how much....

Not trying to discourage you, I do agree Condos can be a good start for an Investor like it was for me..

Remember for 1BRs, school district won't matter much because your tenant will most likely not be a family.

Are you being conservative with Rent, $850??

I have a 3br/2ba Condo in University area and I was getting pretty close to that..

Loren S. · Answer

Great feedback, thanks. I initially was looking for 2 bedrooms in the location, but non were available (all pending sale). Definitely going to look for 2 bedrooms for my next unit.

Loren S. · Answer

That's awesome. That's exactly where I am in my journey. Just starting, found a deal that I think has potential, and I'm going to pull the trigger instead of sitting on the side line over analyzing.

Given the price point, it's minimal risk, and I can likely sell quickly since there were multiple offers on this place the first day it was posted. To date, I've submitted 3 offers, and this condo was the first one that was accepted - it was just perfect timing (caught it literally 3 hrs after being posted to MLS, and the seller was motivated).

I've only been educating myself, and searching for real estate for 3 weeks. I'm the type of person that really digs in (e.g. reading, researching, etc.), and when I feel comfortable, I just execute.

I feel good about this deal, especially given the area it's in (as I mentioned, there are 1.2 million dollar homes literally 5 houses down the street), and I've been living in Charlotte since 2010, so I have a good feel for the area as well as future development plans (e.g. city planning, etc.). But as you alluded to, the experience is going to be the most valuable thing.

The knowledge I will acquire during this first property will be invaluable.

Currently, I'm using the buyers agent I used to buy my personal home. As I mentioned, I caught the property 2 hrs after it was posted to MLS, so I just contacted my agent and told him to submit an offer immediately. I'm likely going to look into other buyers agents that have more knowledge regarding investment properties and rental rates moving forward.

Best of luck on that deal you mentioned - that is amazing (reputation - noted).

Raul R. · Answer

Charlotte is a hot market as I'm sure you know..

Personally I look for 10% ROI but its getting harder to find thru MLS..

When I purchased my first property 2 years ago I did all the numbers and was always 2nd guessing myself. You will never find the ideal deal even now and typically for the average investor your first deal will not be your best deal..

I did all the numbers back then I was conservative and my ROI I think was a little under 10%. What helped me pull the trigger was changing my mentality, stopped looking for a homerun deal and I told myself regardless of the outcome I want the experience.

I came to Charlotte with 0 contacts, not knowing my way around. I now have 3 Properties, by no means I am no expert or PRO but now that I have a team in place makes it much easier. Without my first property would not have my team now...

As you grow and you have a reputation you will see deals will come to you.. I bought my first SFH recently. An elderly Neighbor a few weeks after purchase looked me up somehow and contacted me,  asked me if I would be interested in seeing her Property in my next visit to Charlotte. Told me that she is getting too old to maintain her Property and is thinking about selling in near future.. I haven't done an off market deal without my Realtor but I'm looking forward to it..

How many offers have you made?? Are you using a Realtor, do you have a Buyer Agent?

Loren S. · Answer

@Raul R. Thanks for your feedback. Yes, the loan will be fixed conventional. Most are owner occupied AT THE MOMENT. I think I'm getting in at a good time.I definitely think the HOA fee will go up eventually, which I'm ok with, if the appropriate updates to the condois are made, and the increase can be reflected in rent price.

Not taking it as discouraging at all, I truly appreciate your feedback.Good point on the 1 bedroom. I just figured having a good school district will impact the overall area, which can be reflected in the rent prices in general as well. No?

2 bedrooms in the same set of condos are going for $990 a month (only 100 sqft larger), so I figured $850 would be a good price. Especially after comparing the other comps in the area.

It's in the Cotswold area of Charlotte (28211).

Jerome K. · Answer

I'd stay with the 30 year fixed (less variables and more predictable for future costs).  But I'm sure you'll get different answers depending on who you ask.

Loren S. · Answer

Yes, going to manage it myself, given this will be my only property for now. The HOA fee is solid - confirmed with HOA company.

If I went with the 10 yr ARM, I could drop the interest on the loan to 4%, which would increase my COC ROI, but then I'd need to refinance in the future. Thoughts?

Jerome K. · Answer

Just looking at your numbers, it seems kind of light to me.  Vacancy budget 3%, and no management fees (assuming self management); and you're cash flowing less than $150 a month.  Also, how accurate is the HOA fee?  Condos I'm familiar with would be almost twice that.

What do you think about this deal?

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