First Time Buy & Hold Investment!

[Kerry Smith]

Hello everyone! After a couple of months searching for properties in our area, we found one that we are considering purchasing as our first buy & hold. We would like you guys to take a look at it, and give us your feedback. Thanks in advance!

Background: It is a small 900sq ft, 2/1 in a rural setting with county taxes. It is a REO that has been vacant for 1 year. The basement is a walk-out and currently unfinished. We are considering adding another bedroom/bath in the basement, making it a 3/2, and roughly 1400sq ft total. It has a nice lake at the back of the property. On the day we looked at it, the neighbors (To the SW) mentioned sub-dividing the lot to add on to their backyard. There might be another $5k-$10k there if we can sell off a chunk of the land to them. Zillow has the house at $40k currently. The house to the SW at $160,000 and the to the NE at $139,000. The two houses behind the property are at $175,000 and $185,000 respectively. Across the street is a large church complex.

ARV: 2/1: $84,000 3/2: $110,000

Asking price: $28,000

Rehab Costs: $30,000 (I think I may be a little paranoid here, but better to be conservative.)

Total: $58,000

* I have a portfolio lender that will let us roll the cost of the rehab in to the mortgage.

Down Payment: $11,600 (20%)

Total Financed: $46,400

Estimated Closing Costs: $2000

Insurance: $720/year

Taxes: $600/year

Total Cash Outlay: $11,600 + $2000 = $13,600

30 year mortgage at 5%

Total Monthly Payment: $387 (including taxes & insurance)

Expected Rents: As a 2/1 = $700, As a 3/2 = $900

County GIS Details:

Assessed Value: $81,700

Assessed Building: $67,100

Assessed Land: $14,600

Our Thoughts:

The rents are average for the area. We are figuring $300.00+ a month Cash Flow at $700/mo rent, and a Income to Expense Ratio of 1.17%. 2% would be tough to get in our area, because the rents are low across the board. We could save some rehab costs by leaving it as a 2/1, but it would rent for $150-$200 more per month as a 3/2. We do have a tenant who has already stated they would rent it for $700 once it is completed. The property does meet the 70% rule as a 2/1, but even more so as a 3/2. I am confident we could recoup our money if we absolutely had to sell it.

What do you guys think?!