Potential 1st Buy- Need Deal Feedback

[Erik R.]

Hello All-

I'm still in the process of walking through houses, analyzing deals, and networking.. I have not yet pulled the trigger on my 1st property. My current approach is to run analysis on properties which are coming to me off the MLS through a realtor, and determine a target purchase price based on est Expenses and Cash Flow. I then plan to place offers based on calculated target price, and through the inspection period verify my assumptions through Contractor and PM walk throughs.

Below is a recent listing that I'm contemplating making a low offer on based on a walk through yesterday, and would appreciate any feedback:

Property is in a C+ area (For those Metro Detroit investors, West Dearborn), and is Bank Owned. 3BR, 1.1 BA, 1,164 Sq Ft

Asking price is $64K. Comps show estimated $70k ARV. (not sure why such a large gap..)

Est Rent based on comps = $1,050/mo (rent/asking price ratio = 1.6%).

Gross income = $11,466 (assuming 9% vacancy loss) annual

Est initial Expenses: $15K total

Property requires the following est 'rent ready' improvements: New carpet in 1 room, new back doorwall, main floor bathroom updates, new fixtures, paint, etc..

No central AC; I calculate based on comps I could get $100/mo. more with AC.. est $3-5K

Additional initial expense risks: Water seems to be leaking through cinder block foundation in 1 spot... no idea how much this would cost to repair/mitigate.

Furnace looks very old; city winterization report shows it was functional, however no clue how much life is left...

Recurring expenses:

Taxes/Insurance- $4,450 annual // $379/month

Variable cost PM (10%), with 9% vacancy loss-  $96/mo

I assume $500 annual expense/repairs plus $100/mo in reserves

I assume $300 annual advertising/admin expenses

Total annual recurring expenses = $6,592

NOI = $4,874

In order to net $200/mo cashflow with PM (my own arbitrary target for my market) and yield >9% cash ROI, I need to purchase this property for $45K, assuming a 30yr, 20% down mortgage.

This property would yield (with PM): $215/mo cashflow, 9.75% Cash ROI, 11.79% Total ROI

This property would yield (without PM): $310/mo cashflow, 14% Cash ROI, 16% Total ROI

Final rent/price ratio would be 2.3%

thoughts ?