What if it cash flows when purchased at FMV?

Question

I have an opportunity to buy a 1472 sq. ft. 2 family at $99,900. Rent in the neighborhood is $700 per unit ($1400 per building). Comps have several absolutley identical properties on the same street each at $105,500. I have not seen the inside of the property yet, but I believe it to be in good condition. If it cash flows as shown below is it a good idea to buy at or near FMV? 100% financing per below is another hurdle I'll figure out if I decide to do this. Did I mention there are two of these side-by-side? I'm a newbie so I'm reluctant to take both. Thanks for your thoughts.

High financing estimate because I like to pad things - $110,000 @ 8%= $807
Taxes ($1500/12)=$125
Insurance ($1000/12)=$83
10% Vacancy=$140
10% Repairs/maintenance=$140

Rental income ($1400) minus expenses ($1295) = $105 positive flow

Is this too good to be true?

High financing estimate because I like to pad things - $110,000 @ 8%= $807
Taxes ($1500/12)=$125
Insurance ($1000/12)=$83
10% Vacancy=$140
10% Repairs/maintenance=$140

Rental income ($1400) minus expenses ($1295) = $105 positive flow

Is this too good to be true?

Ryan Webber · Answer

Yes, I got your request.  I have 5 duplexes for sale right now, see http://forums.biggerpockets.com/viewtopic.php?p=22790&highlight=#22790 
and I have an 11 unit and 4 plex for sale.  I can get you the numbers for the 11 unit and 4 unit, but the numbers aren't as good as the duplexes.

Ryan Webber · Answer

I wouldn't have an expectation to find these kind of numbers from an agent.  I am not an agent, but I do have property for sale.

Scott Kiessig · Answer

I live in california and really like the #'s your are quoting for amarillo... can you refer me to an agent or property manager in your area.

Or are you an agent?? I would love to get into some armchair investing in an area with high cash flow potential.

thanks

Scott Kiessig · Answer

i sent a request through your website... none of the properties you have there seem up my ally for now. looking more for something ready to rent.

do you have any contacts in your area that could facilitate finding me some properties??

thanks

Ryan Webber · Answer

Well 70% of ARV minus repairs is for a rehab deal.

Rental numbers are more individually designed for your personal investment goals.

See a rehab is a very cut and dry affair.  When you close on it after fixing it up, you either made more money than you put in it or you didn't.  You either won or you lost.  There is no gray area.  It's black or white.

A long term rental is more complicated than that.  Your personally desired Cash on Cash Return (CCR) and Cap Rate come into play with a rental.  You might be a winner with a 20% CCR, while another investor isn't satisfied unless he is getting 40% on his money.  Some investors are more passive in their portfolios and are open to lower returns for their lack of involvement.  Some investors live in markets that have appreciated over rents and are willing to take lower returns versus doing long distance investing.  An investors "numbers" on rentals are more personalized than a rehab situation.

I personally look for a minimum 40% CCR on my rentals.  I look for rentals that have a cap rate of 15% or higher (something unheard of in most areas of the country).  Now I live in a very good rental market that has not seen much value appreciation over the last couple years.  I also come across a lot of deals in my wholesaling business.  Many investors in my own town wouldn't even be able to find rental properties at the prices I find them at, just because of the volume I do.

Rehab, I would pass on it because it doesn't hit my personal rental numbers.  That doesn't mean it's a bad deal for YOU.  If it hits your personal investment goals, then buy it.

N/A N/A · Answer

Thanks again for your time Ryan. I appreciate the detail you give in your responses.  :D

N/A N/A · Answer

Good info. You'd pass on it because...? I have not yet tried to negotiate. $99,900 is their asking price. I had planned on throwing $90k at them to see if they'd bite.

Don't get me wrong Ryan, your FMV-30%-repairs has become the bible I am trying to live by... this one just has me tempted. ;)

Ryan Webber · Answer

lol, I'd pass on it.  :D

Seriously, I would. :shock:

For my personal market, I would pass on it.  HOWEVER, for YOUR market and YOUR investment goals, it might be a good deal.

For something that I find is a good deal at asking price, I still always find their bottom dollar, but I do it QUICKLY.  I don't want to be left standing there negotiating for a better price while someone else puts it under contract (I say this because I have done it), but I also don't want to pay thousands of dollars that I don't have to.