Is this a good deal? Help a beginner please! :)

[Kevin Austin]

I am a complete beginner at this. I'm sure many of you can remember how scared you were with your first deal. I am looking for mine and want to know how my math is. I have found a property and am trying to apply some metrics.

I would like some general advice on this deal.

Here it is:

2 units

Both units 2br, 1bath.

New 95% efficient furnace/central air unit

Newly refinished wood floors

New roof

New kitchen in first floor unit

Partially remodeled kitchen in upstairs unit.

Both units rented with a 1 year lease expiring in October of 2014.

465.00 a month upstairs and 485.00 a month down, $950 combined.

Asking price: $79,000

I would be putting 25% down. ($19,750)

5.5% interest rate

Lets say closing costs $3,000

Insurance $750/year.

2012 property taxes: $1,278

Total investment $83,146

Monthly Loan Payment: $336

Monthly Property Tax: $106

Monthly Insurance Expense: $62

Total Monthly Payment: $505

Last Sale date: July, 1993: $60,000

Please assume 25% down and $3k closing if you run any numbers with lower purchase price

County Value Details

County Value Details

Improvement Value Appraised $58,060 Assessed (35%) $20,320

Land Value Appraised $15,130 Assessed (35%) $5,300

Total Value Appraised $73,190 Assessed (35%) $25,620

My Thoughts

I am assuming a 90% occupancy rate of both units. While the place is leased for the next year, I an trying to be conservative.

I like applying the different metrics I've been reading about.

I flat out fail the 2% rule. Current rent is 1.1% of total investment ($83,146)

The 50% rule nets me $87.25 a month, or $43.63/unit/month.

Asking price would have to be around $53K for me to net $100 per unit with 50 percent rule.

Do many beginners get caught up with cash flow and rush into bad deals? This deal would provide $350 in monthly cash flow, but that is with no money for an emergency/maintenance fund.

I am ignoring any tax/depreciation benefits. I (maybe wrongly) feel that those should be cherries on top. Please advise on my opinion and whether or not those would help me. I am in the 25% federal tax bracket.

It seems to be an unwise deal for me at listing price. Please give me your thoughts

[Clay Manship]

Hey @Kevin Austin

A few things to keep in mind: The 2% rule is NOT an absolute necessity to use when buying properties. When analyzing a deal, it is simply a rule of thumb to help guide you. A lot of people on here (myself included) treat it as such, and take it for what it is--a general idea.

That being said, I have mentors and lots of folks I know who invest in the Cincinnati market, and even in the Dayton/Kettering markets. Those guys cashflow EASILY $250 monthly per property. I am in Indy and am doing about the same rate. Personally, I believe the price makes this deal not worth the plunge. If you could grab it up for a total investment of somewhere in the neighborhood of $60K, and cashflow $175/month, your level of comfort will rise along with your debt service coverage ratio.

Something else to consider: everything depends on your strategy. I am 23. Everything I want to do is buy and hold, so I STRICTLY look at cashflow and cash on cash return. If you want to place tenants, and some smaller improvements to try a flip on an already quality (?) property, you may be looking at a completely different approach.

Feel free to message me and we can talk it out if you'd like. You will find tons of people on here willing to help, most with more knowledge than myself!