Check over my first deal numbers...

[Craig S.]

Hi All,

I am putting together some numbers for my first deal and would appreciate if you could look over my numbers so far and let me know what you think?

First off, let me explain my current situation and what I am looking to accomplish. I am currently living rent free in a family owned property, but I will be getting married in July (6 months) and will be moving out. My options are to rent an apartment owned by someone else for $825 /month (not including utilities), or purchase my own property. I have found a nice duplex for sale which is in a good location and I have been wanting to get into my first deal for about 6 months now.

The asking price of the duplex is $115,000. It needs new carpeting and some minor foundation repair, and does probably need some block fixed in the basement foundation. The foundation is leaking slightly when it rains very hard as I was told (didn't see any water when I was there). The downspout was not directed properly I was told which drained too much water onto the corner of the wall nearest the sump pump (where the biggest crack is). I am estimating total repair/rehab costs to be about $6,000 (as a current estimate). Although this I guess can change once I get final estimates.

I hope to negotiate the purchase price as low as possible, but feel confident I should be able to get it down to at least $110,000. The owner just purchased it for $109,900 last year in August 2011 but I guess he plans on moving out of state soon so wants to sell. According to records I looked up, he put down 25% on the property so had a mortgage of $82,425.

I will plan on obtaining a FHA 203k Streamlined renovation mortgage to cover the reno costs as well as only need 3.5% down. I will also have the seller pay/credit closing costs--therefore paying a higher sale price for the property.

The duplex currently gross rents for $1,200 ($600 per side). However there is 2 very similar duplexes down the street renting for $650 /month, so there is the opportunity to raise rents.

I contacted a good local lender and here are the numbers I was given:

Sale Price / Rehab = $116,000 (including rehab funds of $6k)
Loan Amount: $111,836
Interest Rate: 4.75%
APR: 5.813%
Payment = $923.66
Cash to close = $4,208.34 (downpayment of 3.5% on $16,000)

Payment Breakdown
P&I = $583.39
Property Tax = $161.36
Hazard Ins = $69.00
PMI = $109.91
Total Payment = $923.66

The duplex has brand new windows throughout, new furnace in one side, new hot water heater in one side, recent roof repairs, and new front door on one side. The only thing I would need to worry about really is the furnace on the other side (not sure of age yet) and replacing the carpet in at least one side, as well as the foundation repairs.

Using the 50% Rule - I would have a negative cashflow of ($93.30) /month initially. However when the PMI is removed (after at least 5 years required by FHA) I would have a positive cashflow of $16.61 (This is not considering the possibility to raise rents, lower purchase price, etc.).

On the other 50% (of the 50% Rule) for operating expenses I would subtract the $161.36 in monthly tax and $69 /month for hazard insurance leaving me $369.64 every month for ALL other operating expenses and reserves. I will be also managing this myself.

I am sure if I keep looking long enough there will be a better deal out there, and at this point these numbers are still estimates. I may be able to negotiate the purchase price lower and/or the rehab costs might increase or decrease after I get my estimates. This is just good timing for me and need to make a decision to buy or rent here in the next few short months.

Considering the fact that I would rather put my $825 /month towards my own purchase/investment instead of paying that in rent to someone else, I would be willing to have some negative cashflow initially--because overall I would be saving money compared to renting an apartment from someone else. This will also help me get my first deal under my belt and make it that much easier to get the ball rolling to start into the next deal, and the next, and next, etc.

Let me know your thoughts on this so far. Thanks!

Craig