First SFR Purchase - Kansas City

[Riley F.]

Just had an offer accepted on a SFR in Independence, MO, though the home is very close to Blue Springs. The home is a 3br, 2ba, 1250 sqft, 2 car garage, built in 1984. I have forecasted a CoC of 8%, and with an equity cash out at 75% LTV, a CoC of 11.5%, with $10k cash out of pocket. Number details below:

Price: $82,500

ARV: $115 - 120,000

Taxes: $150

Insurance: $55

Assumptions are 8% vacancy, 8% repairs, and 12% management fee.

[Engelo Rumora]

@Riley F.

Are is decent but not sure about those numbers.

Purchase price seems high and not much fat in the deal.

Just my opinion.

Thanks

[Riley F.]

@Engelo Rumora

Thanks for your response. Not much fat in what way, do you mind elaborating? Do you mean not much fat as a flip, even though I plan to keep it as a buy and hold?

What sort of CoC or cap rates do you look for in B areas in KC, by way of comparison?

[Engelo Rumora]

Thanks @Riley F. for your comment.

I believe you can find a better deal in the mentioned areas with more equity in them even if you are looking at buying and holding.

If your buying turn key and looking at B class (Independence, Ruskin, Grandview, Raytown) a rough estimate to buy would be around $50,000 purchase with rents from $700pm to $900pm.

14% net - 18% net (maintenance and vacancy not included).

How long have you been looking into the KC market?

Thanks for reading.

[Riley F.]

I see where we are diverging. This area, while in the Independence school district, is less than .25 to Lees Summit and .5 miles from Blue Springs, with comps in the area ranging from $110 - 150 depending on amenities and sq ft.

Ruskin, Raytown, the heart of Independence are more like C- or D neighborhoods, with sales prices of around $50, and CoC's of around 20% even after maintenance and vacancy. I wouldn't compare this to that.

[Andrew Syrios]

Raytown and most parts of Independence are certainly better than Ruskin, which is pretty rough, especially the middle of it. Is there any rehab with this property or is it basically move in ready?

[Riley F.]

$15k rehab, mostly cosmetic. Thought I wrote that. Thanks

[Andrew Syrios]

Yeah, just my opinion, but it seems a little tight to me. When you take into account that rehab usually goes over budget and sales prices are often a little less than hoped, there just isn't very much margin for error here.

[Riley F.]

Tight for a flip, or for a buy and hold? After refi, I am looking at a between 9.5-11.5 cash on cash with approx 30% equity. Even if I am $5,000 over on rehab, I am at an 8% CoC.

My target is 10% CoC.

[Andrew Syrios]

Definitely tight for a flip, it's certainly better for a buy and hold cash on cash wise, but I still like to have a sizable equity margin in buy and holds too. Here you have a little, but the question is could you do better elsewhere? I guess that part is really up to you.

[Patrick Henderson]

I believe the deal is very tight as well. A good rule to RE investing and is my rule. I buy at or below this valuation. 70% if ARV after repaired value minus repairs. that means if a house will sell for $100,000 after repairs and updating and needs $18,000 in repairs my best offering price $52,000. That's what I was taught and it has worked well for me. I know that many would say that those don't come along too often but I would say they are mistaken or misinformed. As one of my teachers said if you are actively marketing to the right people. The deal of a lifetime comes along about a week. You want people who need to sell not want to sell. That is the sad part of SFR investing. We cannot help the situation they got themselves into but we can help them out of those circumstances.

[Jon Holdman]

@Riley F. did I miss your expected rent? Tough to evaluate a rental deal without knowing the expected rent. I see you're in NYC so I assume you'll be using a property manager in Kansas City. Is that right?

[Riley F.]

Jon - HAH, yes, very hard to evaluate without the expected rent. I had that in the body of the first post and must have erased it and forgot to put it in the details. Rent is $1100. I will be using a property manager. Let me try the summary again:

Price: $82,500

Repairs: $15,000

Rent : $1,100

ARV: $115 - 120,000

Taxes: $150

Insurance: $55

Management :12%

Maintenance: 8%

Vacancy: 8%

[Riley F.]

Thanks everyone for the responses. This is certainly why I posted the above. I guess I have misunderstood the 70% rule all along, which I was under the impression was applicable to flips with the following embedded assumptions: 1) 20% net return for the flipper, 2) 10% estimated holding costs / rehab overages.

My understanding was that buy and holds were judged by different metrics, namely price to rent ratio, cash on cash return, and cap rate.

[Account Closed]

In the long run he will be ok with this deal, a solid rental! What i would compare to a purchase in Texas.

The burbs just aren't the place to be in, if you want those sexy numbers. Did a project with @Christopher Coleman

@Christopher Coleman

@Christopher Coleman