Phoenix Arizona BRRR/HH Analysis – 1st Deal Advise (New to REI)

[Austin G.]

Greetings All,

I'm new to analyzing deals and in the learning phase of REI. I'm looking for my first deal in my current market of Phoenix, AZ metro by summer 2021 (+2 years at job). Ideally want a small MF or large SF property to BRRRR/House Hack under $350k.

Here is a property which caught my eye near work. Would y’all please take a look to see if the numbers make sense? Thank you so much in advance! (Format borrowed from @ Moriel Khaykin).

2912 E ROESER Rd Phoenix, AZ 85040

Link - https://www.redfin.com/AZ/Phoenix/2912-E-Roeser-Rd-85040/home/28143344

Asking Price - $309,000 6 Bed / 3 Bath (Tri-Plex) Built - 1984 Lot Size: 7,717 Sq. Ft.

Income

Rent/ Room - $600/month (est. average)

Rental Income - $3,000/month (Rent 5/6 bedrooms)

Total monthly income: $3,000/month

Expenses (monthly)

Property Taxes - $57 (redfin)

Insurance - (Mortgage + Homeowners) - $186 + $82 = $268

Utilities

Electric - $200

Water - $50

Sewer - $50

Garbage - $22

Gas - $60

HOA - 0

Lawn Care - $0

Vacancy - $180 - (6% rental income)

Repairs - $100

CapEx - $100

Property Management - $50 (Self)

Mortgage - $1,588 ( Principal + Interest) of [$309,000 at 3.5% and 30 year fixed]

Total Monthly Expenses: $2,675/month

Cashflow

Income - $3,000

Expenses - $2,850

Total Monthly Cashflow: $150

Cash on Cash ROI

Down Payment - $10,815 (3.5% FHA)

Closing Costs - $3,090 (1% for escrow + title company)

Repairs - $11,095

Total Investment: $25,000

Annual CoC ROI

($325 x 12)/ $25,000 = 0.78%

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FYI this was done by hand and with limited knowledge about repairs/costs. Thanks in advance.

Don G.

[Ryan Swan]

The key thing with FHA is that any 3 or 4 unit property has to be self sufficient (duplexes do not) 

The basic formula is: (Total monthly gross rent x 75%) must be > the total monthly housing payment (P+I+T+I + MIP + HOA).

You almost certainly need a fourplex to be self sufficient, as the rent from just two units will not be greater than your housing payment when only putting 3.5% down. I don't believe the FHA appraiser will consider "by the room" rent in their calculations. 

You also need to factor in the upfront mortgage insurance premium (UFMIP), which in this case would be 85 basis points (.85%) of the loan amount. So that would be an additional $2,534 up front for closing costs (this is not interest or down payment...it's money down the drain).