Thoughts on my first deal?

[Rick Reed]

With the very helpful advice and feedback from folks here and on some of the members' websites, I've taken the plunge and purchased my first rental.

So thank you all for your help, both solicited, and unsolicited!

I'm curious to see what others think about the following deal:

- East Plano, TX 2 bed, 1.5 bath townhouse

- Walking distance to CVS, 7-11, an elementary school, and a middle school.

- List price $70k. Purchased at $63k. Comps are around $72k

- All cash purchase, so closing costs should be around $600

- Repairs should be under $3k (paint, carpet, drywall repairs)

- Rent should be around $950-$1050 (two PMs and a Realtor pulled existing rental amounts)

- Total monthly expenses $513:

$105 Taxes

$33 Insurance

$67 Vacancy (7%)

$48 Repairs (5%)

$95 PM (10%)

$165 HOA (includes water)

- Monthly cash flow should be around $437

Have I missed anything important? Thoughts? Comments?

[Rick Reed]

Originally posted by Bill Schrimpf:

@Rick Reed - Hi Rick - Why did you do an all cash deal rather than use leverage?

Congrats on your first close! I hope it goes well for you.

Perhaps a bit of skewed perception, but here it is...

- I see interest on a mortgage as money lost. That means if I pay cash, all cash flow is ROI. With a mortgage, only the principle portion of the monthly mortgage payment is ROI. You never really get the principle payment back.

- If the goal is to pay off a mortgage as quickly as possible, why even borrow if you don't have to?

- I wanted as much buffer in my monthly expenses as possible since I'm just starting out.

- I can build my cash reserves for repairs and vacancies much quicker.

- Is it even possible to get a mortgage for $47,250 (purchase price - 25% down)?

- I saved a few $k in closing costs.

- Leverage for a better deal. The seller was motivated and wanted out. I could close faster and without any concerns of funding the transaction.

- Immediate equity that I can borrow against if need be.

One could very well argue that I tied up a lot of cash that could have otherwise been used for a down payment on another property. But I have plenty of time and a lot of learning before I jump into another property.