Analyze a potential first deal

[Michael G.]

Hey BP, 

I would like to receive some advice on a potential first buy and hold property.  A little about the area:

Its in a class A neighborhood.  Great location, great town, near a major city. 

It is a condo.  1 bed 1 bath, 900 sq ft.  Listing Price 73K ( I think I can get closer to 65K )

HOA: 265 Prop taxes (annual) : 1387.13 Insurance (estimated) : 55/month

Estimated Rent : 950 

Tenet pays for utilities.

I accounted for 2 months vacancy as an overestimate in my calculation. 

11,400 (rent) - 3180 (HOA) - 1900 (est. 2 mo vacancy) - 1387.13 (annual taxes) - 660 (Insurance) - 404 (estimated mortgage payment with 20% down) = 3868.87 Cash flow

Is this a safe first buy/hold or are the numbers a little tight?  Rent/insurance/and vacancy are all estimated and possible to change. 

Just wondering about everyone's first thoughts. 

Thank you for your feedback and keep in mind: FIRST DEAL (#'s may be off)

[James Masotti]

@Michael G. - It looks like you're missing repairs and property management expenses. Will you be managing the property or outsourcing this function? If you decide to manage it now, what are your long term goals? If you want to grow...will you always be able to take care of the property or will you eventually have to pay someone else to do this? Also what CapEx is included in the HOA fee? If your furnace or water heater go is that covered or would you need to pay for it? If you need to pay for it you will need to budget that into your numbers as well.

I would also inquire with the HOA on the maintenance history of the building, whether they have ever had special assessments imposed, and if so how often and for how much. Make sure you understand any restrictions they HOA has on the % of units that can be rented, and how easily it will be for the HOA to change this rule in the future.

HOA's can be tricky things with condo associations...so I'd try to have another budget item with a condo that I don't have for a SFH, which is "Crazy Condo Costs"

If all the numbers still make sense...take the plunge! My first rental didn't cash flow very much, like $50 a month after all expenses and everything, but it was the best thing I could do to get myself into the game and learn, and I'm looking at much better deals now with a higher level of confidence as a result.