Deal and Creativity advice needed - SFH St. Charles, Missouri

[Eric Jackson]

Hi all,

I am working through the details of my first potential buy and hold opportunity, and I would love feedback from the BP community on both the analysis of the deal as well as creative financing options, if available.  Quick background on the deal, is that this is the home I was raised in.  The property is located in St. Charles, Missouri and would be an out of state rental for me.  I would be purchasing the home from my parents who do not have a ton of equity in the property (refi in 2007) but just need to get out of the mortgage.  My long-term goal is to develop a portfolio in this area of cash flowing properties and focus on fix/flip in my local market.  Here are details on the property:

• Two, story SFH built in 1978
• Recorded as a 3/2.5 
• 2 car garage
• Corner lot
• Good neighborhood, about 2 miles from retail and interstate
• Comps in the area are hovering around $200K
• Property has been vacant for the majority of the last 6 years although the mechanicals have been maintained

In regards to property condition:

• Roof is 10 years old, shows wear from rain drainage
• Furnace replaced in 2014
• AC replaced in 2010
• Exterior is brick, vinyl siding, and wood trim.  Wood trim might need painted at some point
• Concrete porch needs mudjacked which will correct pitch in roof overhang
• Concrete driveway could probably used replaced if I were selling
• Rear wood deck needs maintenance on pickets and railing
• Rear sliding door might need replaced, needs inspection
• Garage ceiling drywall has caved, remove/replace
• Bathroom mirrors need replaced
• Bathroom toilet flushing mechanisms might need replaced
• 5 years ago I removed all interior doors, baseboard, and painted interior
• Baseboards and interior pre hung doors are sitting in the garage - need to inspect for damage
• Kitchen appliances are all present and functioning
• Brand new garage door opener is in box in the garage, not installed
• Basement is unfinished
• Master bedroom is connected to what could be a 4th bedroom by framing/drywalling the connecting wall.  Already has egress window, closet and access to the hallway
• Neighbors are paying $5500 to have a couple dead trees and other landscaping removed by a contractor to improve the aesthetics of the neighborhood

I am headed back over Thanksgiving to further inspect the property as the descriptions above are all from a conversation with my father.  They aren't in a huge hurry to sell the property so I have some time to estimate a budget to bring the place to good rental condition, devise a plan for the repairs, and arrange financing.  In regards to the rental analysis, here are my numbers:

Purchase Price - $140,000

20%  Down - $28,000

Rehab Costs - $10,000 (very prelim/rough)

Loan amount - $112,000

• Rental income ~$1500
• Principal & Int - $568 (4.5% 30yr fixed)
• Taxes - $210
• Insurance - $100
• Management - $100 (bro-in law short-term)
• Maint/Capex - $200
• Cash Flow - $322

Cash on cash return - 10.2% (16% without accruals)

My desire would then be to re-fi as soon as I can to somewhere close to a 75% LTV of the $200K ARV. This would provide a loan amount of $150K and allow me to pull all $38K I had into the property out for another investment. Revised financials below:

• Cash Flow - $130/mo
• No Money invested

So what would you do here?  Numbers fall within your investment criteria?  Would you handle financing differently?  I was hoping there would be a creative way to avoid using one of my 10 conventional loans for this property, but with the small equity they have and their current loan of 6.25% I don't see the opportunity.

Thanks for any insight you're willing to provide!!