First Property Purchase...Deal Analysis Review

[Cory OBrien]

I've been reading here for a long time, but this is my first post.  I've offered on several properties at this point, all SF with intention as buy and hold, but haven't yet closed a deal.

My latest offer is on a Fannie foreclosed property, and will likely be asked to provide highest and best as another offer has come in during our negotiations.  

Here are the details...List price $58k, needs about $24,500 in renovation expenses. Other than major repairs (roof and HVAC), I'll do all repairs myself in about 4 months. ARV is estimated at $115k by comps and my real estate agent. I'm also adding in 4 months of holding costs and closing costs, making my total initial investment at about $87k (if $58k purchase).

Estimating rent on low side of what I see as this is a mostly owner occupied neighborhood...so I'm using $900 with 5% vacancy.  

Expenses including taxes, ins, management (10%), Capital (5%), Maintenance (8%) total $5142. With debt service on a 30yr at 4% being almost $4000, I see free cash flow at about $1,134 per year. With 20% down I'm at 7% COCR and a 6% cap rate at $58k....seems pretty low from what I've read.

So, I offered $43k, they countered with $55,500. I countered them again at $48k to get my COCR to 10% and nearly a 7% cap rate...and now no response and another offer has come in. What is my highest and best in your opinion? What target should I be going for with COCR and Cap rate....I just don't see any deals in my area that get close to 9% (the number I've heard from others online and locally). Too conservative on some of my numbers?

Any help is greatly appreciated.  I can't say enough great things about how much I've learned from the members of BP!

Cory