Buying 1st Investment Property Questions

[Jeff Norton]

Hello Biggerpockets community!  

I am about to go to contract on a townhouse that is located directly across the street from my son's college. I am doing this because I am currently paying $10,000 for his dorm (not including the meal plan) . He is just a freshman and has to live on campus next year at $12, 000 to dorm. This opportunity came up. I am not banking on appreciation just the cashflow and the fact that by my son living there his Junior and Senior year will save me about $12,000 (not including the cashflow) I am skiddish about townhomes and condos with the HOA etc., but it is a low price point of entry for here in overpriced New Jersey. The purchase price is $120,000. I am using a conventional loan putting 20 % down at 5.25 % financing. It is 3 bedroom, 1 and 1/2 bath, renting for $1500/month. I ran the numbers based upon a $120,000 purchase price with $105 HOA fee; plugged in for vacancy & repairs (5 % each) and capex (8 %) it will cashflow $240/month. CoC ROI 1st year 7.72 % up to 12.49 % by year 10 with NO appreciation factored in. Here is the seller response to my initial offer of $115,000-

"After talking with my Seller here is where he is at. He is alright with doing the home inspection contingency, mortgage contingency, and additional contingency of the house being rented prior to closing but only at an asking price of $120,000 with each party splitting the fee (1st month’s rent) to RE/Max for placing the new tenants. Additionally, we would like to keep the property listed as Active but back-up offers only since there are so many contingencies. Below is the summary:

Purchase Price: $120,000

Ernst Money Deposit: $1,000

Contingent on a conventional Mortgage in the amount of $96,000

Contingent on a home inspection and termite inspection.

All appliances included

Buyer will be assuming the current tenants

Buyer and seller will be splitting the fee for placing the tenants

Seller will still have property active with showing but for back-up offers only

Sale of property will be contingent on a lease being signed for the start of August 2019 – Summer of 2020.

Settlement date will be for 4/26/19 with a 15-day extension if there are tenants that are in the middle of completing a lease when we come to the date of the 26th.

I have attached the first and last pages of the current lease. I’ll send over the entire copy within the next couple of days.

The reason I was proposing the extra extension is sometimes you get a group that wants to commit by does not have the entire payment right away. Sometimes they need additional time for parents to send money so they have the deposit and 1st month’s rent complete. I don’t want to get to a day before settlement and have the problem of tenants for next year just needing an extra week or so to complete the signing process."

I am 99 % sure that I will finally pull the trigger onthis one.  I guess I am looking for reassurances from the Biggerpockets community.  I very much welcome and value your opinions and/or critiques.   Any advice would be greatly appreciated. 

Jeff Norton