Deal analysis of rental property

[Jacob Carlson]

Hey Bigger Pockets!

I would appreciate some help analyzing a deal I'm looking at. 

2919 N 49th Ave

Omaha, NE 68104

 This will be my first deal. I want to get something where I can add value but not a complete gut job for my first one. So, I found a 2bd 1 ba 744sqft house. An older couple is moving. They listed it at $95k a couple months ago and have lower the price a few times and it is now sitting at $80k. 

The house itself is in move in ready condition and should rent as is around $900-$1000. 

I was going to purchase with traditional financing and finish the basement. It is a 6'-2" ceiling height so I can't make it into a bedroom... I was going to make it a living room, add a 1/2 bath and storage in the other half. (Roughly $5k) if it's going to be worth the return. So, possibly there to get more rent and add value. 

I offered $67.5k they countered $79k... I countered $70k they said $75k

So, looking at $75k PP

$900 taxes/yr

$950/ mo rent

The rental calculator told me

$16,500 down (including $1,500 for closing costs)

$149.33 cash flow 

I would manage so that's an additional $95/mo

ROI 10.86%

It's not a home run but it seems fairly safe. 

Let me know if you need any more info. 

What are your thoughts? Thank you in advance!!!

[Mitch Messer]

Hi @Jacob Carlson and congrats on taking steps toward that magic Deal #1!

Here are my main thoughts:

• I believe 2/1s represent unnecessary vacancy risk for landlords. The kinds of living arrangements that can tolerate two bedrooms (roommates, unmarried couples, single-child families) are often inherently delicate. You're always just one soured friendship (or one failed relationship, or one unexpected pregnancy) away from a broken lease.
• If the current owners have been in this property for a while, I can guarantee there are repairs that will need to be done. You might not discover them all before the sale, but I promise you they are waiting in the wings to potentially wreck your cashflow. Be careful and thorough in your inspection.
• If you truly believe the retail value of the property is $75K, then as an investor you should not be paying that much! I believe investors should only get involved when they can add value, usually either by buying faster than anyone else or by buying when no retail buyer will. In exchange for this, you deserve a discount (we take 10%) off the retail ARV. That said, if this house has sat at $80K, then the retail buyers in your market are saying it's not worth that much.

So, if you do move forward with this deal, consider a lower asking price and don't be afraid to walk away if you don't get it. Just don't go too far away: With the fall upon us and winter fast approaching, time is definitely on your side. Be sure to follow up in a few weeks if you get a "no" now.

Good luck!