8 Single Family Home Package - Eastern Iowa

[Wes S.]

Located an Older Gentleman who wants to Jump Out. Wants to package a deal together and walk...not sure if I can bite that much off. He would do a contract but wants what the banks want and not giving me a hard number yet, just basing his number off of assessments and a package deal. They are all Single Family Homes, most in good locations, few loosers but profitable. All have permanant siding, all take care of own lawn/snow removal, all utilities are tenants responsibility. Here are the Numbers and let me know what you think:

Rent Tax Ins. 09 AsseV 07AsseV
$410 $73 $40 $43,200 $50,000


$375 $48 $40 $32,700 $32,700


$400 $65 $40 $38,000 $44,500


$400 $58 $40 $33,600 $40,200


$400 $64 $40 $37,700 $43,800


$365 $61 $40 $32,400 $41,800


$375 $28 $40 $19,100 $19,100


$400 $35 $40 $23,100 $23,100

_____________________________________________________

$3,125 $432/Mo. $320/Mo. $259,800 $295,200

TOTAL RENT: $3,125
TOTAL PITI: $2,502
TOTAL PROFIT: $623
**Used the 2007 Assessed Value Numbers as his Approximate Asking Price. He hasn't given me a distinct purchase price number on each property because he wants to cash out and sell in package.
**I'd like to have $100 Profit for each house, however I buy things with a 'Margin of Safety' knowing if I need to bail, I can and still make a profit or atleast breakeven.
**CAPEX is a concern: Most of the Roofs were replaced in 2001/2002 however furnace, windows and interior repair/replacements add up quickly.
**I haven't seen the inside yet...
**Rents are about $25-$50 below market (I figure you could add $250 to total rent upon vacancies)
**I figure you can borrow $7.4/$1000 (IE: $250k = $250 * 7 = $1750 Payment)
**

[Jon Holdman]

I'd never use a tax assessment as a value, and I SURE would not use a 2007 assessment. This guy is smoking crack if he thinks that's still the value.

You need to find an agent or some other source and get good, recent comps to get retail values. Then pay significantly less than that.

I'll back into a value from the rent, which may or may not be a good value, but it the max the rent will support. A rough guess is this package is worth about $160K total. Here's a detailed calculation.

First one
Rent: $410
Expenses: $205 (50% rule, read sticky threads in the Rental Property forum)
NOI: $205
Desired cash flow: $100 (a commonly used number)
Max payment: $105
Max loan: $15,782
Max price: $15,782

Yes, I know you would put in a down payment. But that's hardly free money.

Since the rents are all in the same ballpark, that puts the total around $120K. Lower than my initial estimate because $100 is a big chunk to take out of $400 rent, and doesn't leave much for debt service.

I also get concerned about expense when rents are this low. Taxes and insurance are probably equivalently low, as are vacancies. However, and eviction costs the same whether then rent is $400 or $1000. As do sheet rock repairs or new furnaces. Plus you're dealing with eight tenants where three or four higher rent properties would net the same rent for less hassle. $259K is much, much too much.