First Time Investor Here

[Andrew Eshbaugh]

Hello BP peeps!

My wife and I are new investors and working on getting our first deal. We located a property that we've walked through with a contractor and another local investor friend. I'll list the details below. I'd really like to see if anyone has any input to the approach we're taking and would be willing to offer up any advice for us. We've been visiting the forums for a while now and have been listening to the podcasts. So we feel like we, at least, know enough to get ourselves into a decent deal.

The house is a tri-plex and is currently on the market for $50k. It's owned by the County Land Bank, which acquired the property after 3+ years of tax avoidance. 

Back taxes are currently $1,500. 

Estimated annual taxes is $2,100. 

The renovation estimate is $40k. 

I'm estimating closing costs to be $5k including the $1,500 in back taxes.

All in budget looks to be roughly $95k. Once the house has been renovated, it's estimated worth is $140k-$180k, from what we've been told.

Being that this is owned by the land bank, we are required to show all proof of funds and a renovation budget/plan. This shouldn't be a problem, but just one more hoop to jump through.

How we plan to pay for it:

We are finalizing our HELOC which should give us ~$71k. We will use the HELOC to provide the 25% down payment on a mortgage. $12,500 from the HELOC and the remaining $37.5k in a mortgage. That gives us enough headroom to use the HELOC for the renovation budget.

With all this in mind, here are the estimated details of the income stream.

We can take the easy way out and grab renters from a local agency that vets and places homeless veterans. They do all the vetting and also pay the monthly rent. This would give us a $2,200 income for all 3 units. Alternatively, we can rent out the old fashioned way and bring in about $3,000.

Using the BP Calculator, we used the $2,200 income rate to see our lowest option for income. After saving 5% for vacancy, 7% for Cap Ex, 7% for repairs factoring in $350 for utilities (we'd have to pay if we used the local agency), we'd have a monthly cashflow of ~$640.

This seems like a great deal to pursue, but I'd like to hear others inputs.

Anybody ever deal with land banks? Am I missing some expenses somewhere?

Thanks for taking the time to read my story!

[Corby Goade]

While I can appreciate that you are interested in helping homeless vets, I would be hesitant to make your first landording experience one where you work with a high risk population. Yes, rent is guaranteed, but managing tenants that have been recently homeless, presumably unemployed and hopefully drug free could be daunting to say the very least.

Consider what the market rents in that area are- what quality of tenant do you think you could attract? Could you get gainfully employed tenants with reasonable credit?

Beyond that, your numbers look fine to me, I would just be concerned about your tenant placing plan, it could be very difficult to manage as a newbie.

Best of luck!