Is this a deal?

Question

Hello all I need help analyzing this deal whether it makes sense or not.

Owner owes the bank 36k on the mortgage with 26 years left. House is worth 40k but has been vandalized so would take about 10k to get rent ready.

My plan would be to take over the mortgage payments subject too with 0 down as he is losing $400 a month by it being vacant.

Monthly Rent $950

P&I   $189

Tax  $ 183

Ins   $ 50

Maint $ 80

Vac    $ 80

mngmt $ 95

Capex  $ 47

so cash flow would be $226 a month

Aaron Montague · Answer

Nope.  Your cash flow is going to be a great deal less than this.  $47/month in Cap Ex is too low.  Figure at least $150 and see if you still like the deal.

I'm guessing this isn't going to be an awesome one.  Remember you need to pay 10k.  Plus I'm sure assuming a mortgage isn't free.  My guess is you are looking at at least 10,500 out of pocket and ~$125/month cash flow.  Make your own choices from there.

Alexander Felice · Answer

Gotta agree. I thought it was a solid deal too until I saw the 10k part.

Now you have a ridiculously low cash on cash return, and you'll end up with a 46k all in for a house you said is worth only 40k.

No deal friend. Sounds like the owner knows it isn't a deal and that's why he's offering such good terms.

Alexander Felice · Answer

I believe Joe is speaking of CoC. Amortization wouldn't be factored in.

Mark Elliott · Answer

hi eddie. first of all, you are in new york, so the taxes part of this formula will change every year, and that means NOT go down. consequently, your monthly cash flow will decrease as well. lets look at the bigger picture. a house, bought 4 years ago, is now vacant. why?? after 4 years, this current owner has already figured out that this deal doesn't work for him. why?? if it doesn't work for him, why would you think it would work for you? he could put someone in there as well as you could and the numbers would work the same for him, so why doesn't he do it? simply...... because this place, with these numbers don't work. there is no equity, there is not going to be any equity for some time to come because the market in new york sits pretty still, and there is no one living in the place right now to get instant income from. obviously, no one live there very long anyway because it is vacant and this guy has only owned it for 4 years. in any rental situation, you can factor in a 25% vacancy rate as well, meaning at any given time, you will have no one living in there for 3 months of the year. $226 per month times 12 months of the year is $2712 per year. factor in 3 months of the year with no income at $950 per month, and your total years profit is gone. i would run the other way on this one. find another deal. they are out there

Joe Villeneuve · Answer

You can, and many do.  It IS a return on your investment, but my goal for real estate investing is cash...not equity.  For me, equity is a bonus in the form of a trophy.  I can't do anything with it but look at it...much like a trophy.

Joe Villeneuve · Answer

If you are interested in that then yes. I'm not.  I'm interested in Concord and cash flow.

Eddie T. · Answer

@Joe Villeneuve

When analyzing these deals don't you have to factor in principal pay down as part of the return?

Joe Villeneuve · Answer

Then the answer is "no deal". If you have to put in $10k (maybe/probably more) of your cash in the deal then I'd walk away. If all goes smooth, a big if, at $200/ month, it will take you at least 50 months (over 4 years) before you recover your cash. All you're doing is solving his problem.

Rick Pozos · Answer

A 40k house that rents for $950 per month??? I would definitely check rentals in the area as well as values.

If that is the case, hell of a deal.  Where is the house located??

Eddie T. · Answer

It's vacant... I would need to rehab it for 10k before renting it.

Is this a deal?

Most Popular Reply