Help me figure the math please!! #HELCO #LongDistance #Rental

[Leo Tsang]

I come across a single family with 4 bedrooms and 2 baths in Baltimore recently. The asking price is less than 70K which comes with a Section 8 tenant who has been living there for 3 going to 4 years for $1600/mth (tenant pays all utilities). The purchase has to be in cash. The market value I am told is 200K by looking at the comps that the seller provided. I need to verify but by looking recent sale records online of the surrounding, the selling price is at least 120K in the same neighborhood.

I am thinking to get a HELOC out of my primary residence in NJ. But I didnt know if my math is correct and need your help.

So let say I would buy the property with cash for 70K. In theory, I can refinance it right away for 120K (or more if the market value is higher but for now let's stick with 120k) that I could pay off the HELOC immediately and keep the 50K. 

I estimate that for 120K mortgage at current interest rate of ~5% for 15 yr, the payment would be 10K/mth. I usually set aside ~25% of rent for capex and vacancy, plus 10% management fee. The net gain is 40 = 1600 (rent) -1000 (mortgage) - (1600*35% (capex+vacancy+management)). 

It seems to be a good deal to me although it doesnt cash flow a lot. To make it a better cash flow deal, I could go for a longer term e.g 30 year so the mortgage payment becomes less than $700 making the net gain to $340. I am not sure if it is a good idea. What if the market there was not good and I could not sell the house at 120K in the future e.g. 5 years

Since it is my first attempt of long distance investment, I would like to be more cautious and would like to have a second set of eye on my math. Any comment/advice is very welcome.

I tried to use the bigger pocket rental property tool to run number for this scenario. I dont know how I should put the number if it is a cash deal using HELOC and then refinance, paying off HELOC and using the rent to cover the mortgage hopefully with additional cash flow.

I would like to get an appraiser to estimate the market value of the property. Do you think if it is worth it? 

Since the property is occupied, I would not be able to conduct a throughout inspection. What is your opinion and advice in such situation? Any real life experience to share?

Thank you very much in advance.

#HELCO #LongDistance #Rental #Cash #Refinance #tenantoccupied