Ready to jump into first deal, please provide advice on deal!

[Jake Engle]

I have found a property that I am very interested in and am prepared to move along with an offer. I am a first time investor and have just read a few books and researched this site as much as possible. I am a licensed agent and have a pretty solid understanding of my local market.

Now about the property. The property is a Triplex unit, with a two story single a couple feet away. These are two separate parcels being sold together. It is a rural property, so property is served by well and septic.

I believe the property can be purchased for $175,000. The taxes are $4,200. The Triplex has 1 4-br unit, 1 2-br unit, and an efficiency. The single residence is a large 2 br. When comparing possible rents, the units fully rented should rent for $3,300 per month. Two of the units don't need any work and are rented and bringing in $1,300 per month. The other two units need approx. 10-15k in rehab.

Does this deal seem to be a good deal to pursue. My main concern is having a well and septic system service the property. If either of these systems go bad, that is obviously a major expense. Any other info that I could provide to assist in analyzing the deal? I'd really appreciate any advice that you could provide.

[Katharine Chartrand]

A deal is only good or bad relative to what other options you have to invest in and what your goal is.

Before I invested in anything, I spent 6 months creating spreadsheet to calculate the cap ratio, cash on cash return of every deal that kinda looked interesting in my area. That helped me think about my goals and what kinds of returns were available to me in my area. It gave me a baseline to measure opportunities by. And it helped think generally about whether I should put money into real estate or something else.

Once you collect even 10 of these, you develop your own sense of the goal, and you know what a good deal is, in your hunting area, by your measures.

By my analysis that is a 25%+ cash on cash return, assuming the total cost of buying it and renovating it (count vacancy) is 200K, you put 25% down and you get a 5% interest rate. In my area, that's a buy.

My spreadsheet looks like this. I am really curious how other people evaluate a rental property.

target purchase price needed repairs total invested

annual income

taxes (1%) maintenance, repairs, vacancy (25%)

insurance (.5%)

HOA

Total Expenses

Income after Expenses

Interest on purchase price

Principal on purchase price

Total Mortgage

Total Expenses (including interest)

Income after Expenses (including interest)

Cash Flow

CAP ratio

cash on cash return