Just made an offer on my first rental

[Byron Bailey]

Hi all,

A deal came out from a wholesaler this week and an option came about to take over the note from the seller.  Here are the specs...

Duplex. 

Upstairs: 2 bedroom, 1 bath, 1000 sqare feet, rent $850-1050.  Technically rental ready but I would like to put some TLC into it. 

Downstairs: 1 bedroom, 1 bath, 624 square feet, rent $550-750.  Needs some work.  Have budgeted $10k for forced appreciation.

The seller has 2 notes open on the duplex.  One for $35k and one with $55k remaining.   The deal is that I will put down $35k so they can wipe their one note, and I will take over their other note, which will have a monthly payment of $590 and will be paid off in 2026.  

Assuming I can get $950 for the top unit and $650 for the bottom unit = $1600 total rent

Minus...

Mortgage: $590

Taxes: $91.96

Insurance: $100

Vacancy: $80

Repairs: $80

CapEx: $183

(maybe) Property management @11% : $176

= CASH FLOW $299.33  

This is a stellar rental area, nice neighborhood and near a military base so my plan is to hang on to it.  I am also drawn to it because of the short loan payoff timespan.

My emergency exit strategy is to utilize a partner (already agreed) to fund a full rehab and sell the property. ARV for a property like this is $150k-$180k. A flipper just sold a similar duplex on the same street for $180k.

This down payment will be the biggest check I have ever written so I am a bit nervous right now!

Any advice is much appreciated!  Thank you all!