My First Deal!

[Ryan Sasscer]

Last week I bought my first investment property!  After looking at the property, I made an offer below asking price, and we ended up settling on a price between my offer and the original price.  Closing is schedule for mid August, so here is what I understand I need to accomplish between now and then (let me know if I've forgotten something):

- Complete financing

- Get a home owner's insurance quote

- Review the property inspection (scheduled for this week)

- Interview/Higher a manager (since I will not be managing it myself)

- Market the property and have my manager take over the current lease (it is a duplex.  One unit has a signed lease, the other does not yet)

Here is how I analyzed the property to determine the cash on cash return of 11% (let me know if I'm doing this correctly):

- Purchase price: $140,000

- Loan payment: $509 (principal and interest only). With financing at a 4.125% rate and 75% LTV ratio.

- Property tax: $78 per month

- Insurance: about $90 per month (I do not have an exact quote yet)

- Management fee: $160 per month (10% or gross monthly rent)

- Maintenance/repairs (reoccurring): $160 (estimated 10% of gross monthly rent) 

- Vacancy: $133 per month (calculated at a vacancy rate of 8.33% or one month of vacancy per year per unit)

- Landscaping: $100 per month

- Total monthly expenses: $1,230

- Rental Income: $1,600 (2 units renting for $800 per month)

- Cash flow: $370 per month ($1,600 - $1,230 = $370)

- Down Payment: $40,000 (including closing costs and cost of inspection)

- Cash on cash return: 11% ($370 x 12 = $4,440.  Then $4,440 / $40,000 = 0.111 = 11.1%)

I value the feedback of those who have done this many times before to help me avoid pitfalls I may have not considered.  If you see any please call them out!