To pull the trigger or not pull the trigger that is the question (Dallas)

[Joseph Weisenbloom]

I received a counter offer for the below property. This property will be my first investment so I need some guidance. House has been recently renovated and should be rent ready pending on inspection. I plan to do all management but will outsource maintenance depending on severity of damage. I plan to live in one unit and rent the other out.

Location: Sherman, TX

Size:1,912 Sq Ft

Lot size: 7,841 Sq Ft

Units: two houses on one piece of land (one is a 2-1 the other is a 3-1)

Price:$75,000

Year Built: 1948

Metering: Property is separately metered for electric but has one water meter.

Income: Property is currently vacant. My rent estimates come from a combination of MLS listings, rentometer, and common sense

Neighborhood rank: B

Rent both sides out:

3-1: $750

2-1: $500

Total income: $1250/mo

Expenses:

Vacancy: $125/mo (10%)

Management: $125/mo (10%)

Maintenance and Capex: $187(15%)

Taxes: $113/mo ($1362 for 2013)

Insurance: $35/mo (Called a few companies and got an average for around 400/yr)

Water, sewer garbage: $125/mo

Total Expenses: $710/mo

$1250-710= $540 NOI

P+I: $377/mo ($72,375 30 years @ 4.75%)

PMI: $78/mo

Monthly cash flow: $85

Yearly cash flow: $1020

Money invested:

Closing costs: $3500

Realtor Commission: $2250 (3%)

Down Payment: $2625 ($75000 * .035)

Mortgage Insurance: $1312 ($75000 * .0175)

Total Invested $9687

CoC Return: $1020/$9687 = 10.5%

Live in one unit rent the other out:

Income: $750/mo

Monthly payment: $603/mo PITI

Water, sewer, garbage $125/mo

My electric bill: remaining $22 will go towards my electric bill

$750-603-125-22 = Living mostly for free may need to chip in on electric or water bill.

Qualitative Analysis

My goal for selecting this property is to live in one unit and rent the other unit out and live for free. After a few years I would move out and rent the other side to make it a regular rental. The property is not a home run by any means but I think it will be a good opportunity to get my feet wet and it meets my goals.

The location is in Sherman,TX which is a growing city 60 miles north of Dallas. Sherman is right in the path of the suburban sprawl that is happening north of the city and has potential for appreciation. Most importantly this location is convenient to my job and will shorten my commute between Dallas, Oklahoma City and Tulsa. Sherman schools recently came out ranked as within the top 20 SAT scores in the metroplex. The city is ripe with other investment opportunities.

The neighborhood I am looking at is low crime, middle class and is within walking distance to both Austin College and Sherman High School. My target tenant is a working class family. I plan to live in this house for a few years and expand my portfolio with local SFHs.

I think its a winner but I may be wrong what do y'all think?

[Joel Owens]

Joseph make sure no weird issues with the lot for the 2 houses.

Water monthly might run more than you think.

I love when they say "recently renovated". It's often a bunch of crap especially from a house in 1948.

Usually they slap carpet and paint and replace a few fixtures which is worthless. What crushes you is the bones of the property with that vintage age. How is the roof, water heater, a/c and heater, plumbing, electrical, etc.? Those items will drain your cash flow dry in a hurry.

If the seller could show you a gut up reno with everything new that's different but I doubt it at the price you are buying at. Houses are just like cars. You can take a piece of crap and repaint for cheap and put some gloss on it. What really matters is what is under the hood and the mechanics.