Factoring in downpayment on 50% Rule, first deal!

[Craig S.]

Hello,

I am getting all the numbers gathered for my first deal, rough total purchase price to be about $110,000 on a duplex. I will need to make some repairs to the foundation and replace the carpet in the entire house, I would estimate maybe $5k or $6k in repair cost. I will probably be applying for a FHA 203k remodel mortgage in which the repair costs can be factored into the mortgage. So, total mortgage will probably be around $120,000. It currently rents for $600 per side, although I will be moving into one. I think there is also an opportunity to raise rents after I complete the repairs.

I am considering the 50% rule to play it on the safe side factoring in operating expenses. The roof was recently repaired, all new windows last year, and a new furnace and hot water heater in one side last month.

When calculating in the 50% rule, what do you calculate as the standard downpayment (20%), or do you factor in the ACTUAL downpayment in each case? Obviously with only 3.5% down on FHA, my monthly mortgage payments will be higher, making it harder to achieve cashflow. Also a big component for me is that my PMI insurance will be around $150 per month due to only the 3.5% down/equity (with FHA, PMI insurance is required for 60 months unless I refinance).

Here are my current (rough) numbers:
(Please check and make sure costs look accurate)

Sale price = $110,000
Est. rehab costs (added into mortgage) = $6,000
Total property cost = $116,000
Closing costs added to mortgage (est. 5%) = $5,800
Total Cost = $121,800
Downpayment of 3.5% = $4,263
Mortgage on $117,537
Estimated PMI insurance = $150 /month
Estimated PITI (excluding PMI) @ 4.75% interest = $740 /month
Total monthly payment = $890 ($740 PITI + $150 PMI)

Currently rents for $600 per side.

In this case, I will only have roughly $600 per month of NOI (using 50% rule). Leaving me with a negative monthly cashflow of $290 per month until the PMI is paid off in 60 months bringing my cashflow to [negative] -$140 /month.

But again, this is only with 3.5% down and paying $150 in PMI monthly. Also, after I repair the property I am hoping to be able to raise rents $25 - $50 per month per side.

What do you guys think? I am overwhelmed with learning everything and trying to estimate all the numbers/cashflow/etc. and want someone's opinion?

Thanks in advance,
Craig