Possible First Deal

[Sam Washburn]

For those who don't know, I joined BP yesterday, and have only even considered REI in the last week or so.

So, I was thinking of starting with something I can play around with that wouldn't hurt too bad if I really screw something up.

Here's what I found:

2BR/1BA for $32500 ~850sqft, I'm thinking of offering $26k

I drove over there and peeked in the windows and it seems well maintained with nice windows, bath(what I could see) and carpets, also the roof and siding looks good to me.

There was an apartment down the street, that looked about the same size, with a rental sign out front that said $450/mo.

I found it on HomePath.com and they say I can get it for 5% down. Is that right?

Ok, so here are some rough numbers I've calculated. (I hope I'm doing this right)

Rent: $450

50% rule: $225

Down Payment: $1625

Closing Costs: $3000? (I'm not sure how to calculate this, but the last time I refinanced my own house it was about that much).

P&I for 30yrs at 5% would be $191

Out of pocket: $4300? (Not sure if I'm missing something obvious)

Cash Flow: $69.30 / month (low, i know)

Cash over cash: $832 / $4300 = 19%

Did I do that right?

Thanks for helping me figure this stuff out!

Sam

[Patrick L.]

I wouldn't recommend purchasing a single family home that only rents for $450 per month as you will generally exceed the 50% rule. A roof on an 850 sqft house costs the same whether it rents for $450 or $1200. Same with paint, a water heater, HVAC, etc. If you replace the roof on that house that's going to cost almost a full year's rent. When a tenant moves out and the property is in "fair" condition you might have $1,500 in make ready expenses and you'll probably only have a security deposit of ~$450.

In my opinion there's just too little cash flow in that deal to have the risk that comes with low rent properties.