My First Deal Analysis

[Trevis Kelley]

Well, I have read a ton of information in the past month.  I am investing in a small town, trying to gain some cashflow before moving to a bigger town to get multi-family properties.  I think I have some of the analysis fundamentals down for buy and hold properties.  I have a spreadsheet I created to use to analyze these deals, but I have no idea how to upload it, so I will just list what I have.

2br 1ba single family home I found on Craigslist as a FSBO.

Asking Price: $21,500

Place is currently rented for $475 (although market is at $525 for similar properties).

Price I would try to get it at:  $15,000

Been on Craigslist for at least 200 days (verified by the fact that I saw same property with same owners back in March).

I think I could get it for $15,000 after looking at property with owner and how motivated they are to not be landlords anymore.  They are also living out of state, husband comes back for 60 days to show the place and then goes back.  Don't know exactly how often this happens.

Would ask for 100% seller financing (They own it free and clear) and 0% interest.  Don't know if I would get it.  Have enough cash on hand to pay asking price (didn't let owner know that, though).

Here is my analysis (at $21,500/100% financing/5% interest - to make sure cashflow works no matter what I can get):

Mortgage Payment (15 year):  $170.02/mo

Taxes (verified by assesor's site):  $37.50/mo

Insurance (got a quote from my current insurance provider): $45/mo

Maintenance: $100/mo

I would do my own property management (I am already managing 4 properties for my parents and love every minute of it - all 60 I spend per month or less).

Total monthly outlaw:  $352.52/mo.

Monthly cashflow at $475/mo rent:  $122.48 for a cap rate of 7%.

Other thoughts:  What I am showing above is a worst-case scenario.  I am expecting to do better.  The reason I am small is because I can use this deal to maximize my money.  The home is well-maintained.  The home is priced (at asking price) about $5-$7K below what I see everywhere else for similar properties.

Problems I see:  No real good exit strategy if I ever need to get rid of it.  The market in my area is depressed and difficult to sell out of.  Rental prices are decent based on a nearby military base.  Lots of people who don't want to buy because they are moving all the time, but still need places to live.  I don't see rentals dropping any time soon, neither do I see the market for selling properties to go up.

Thoughts?  Anything I should look at that I missed?  Thank you to everyone here!

[Hattie Dizmond]

So, your analysis of the property and your thought process both seem very sound.  Nice job.  And, I love the fact that you've considered the need for multiple exit strategies and understand both the current market and the potential changes in the market.  I have no problem with your numbers.

My question is, since you have some cash on hand, why wouldn't you leverage that on a property in an area with better margins and opportunities?