Analyze this deal; any help appreciated!

[Kenneth McKeown]

Let me know what you think as my potential first investment! 

4-Plex 

Purchase Price: 200k

Currently tax appraised at 218k

3% downpayment

Total Loan Amount: 194,000

Texas Teacher Heros Grant: 4% or 7,760

PITI: 1729/month (1056 P&I, 513 taxes, 100 insurance, 60 PMI)

Currently renting out for $525/$550/$550/$600 but plan to bring them all up to $600 and house hack one unit. So $600 for three units and rent out the other. 

More info on the property... Roof replaced in summer 2016, all units are renovated completely within last 2-3 years, brick building with pier and beam foundation with concrete perimeter foundation. I could also potentially use my VA loan which would require 0% down.

In the end.. I've ran my numbers on BP roughly and got around 50% cash on cash return (because I'm not putting much down at all), while getting about $400 in cash flow a month (I used $2400/mo though with the numbers as if I wasn't going to live in it). Let me know what you think.. and thanks!

[Ian R.]

Kenneth McKeown

First off, congrats on your first deal! I think the idea of house-hacking a quad is a fantastic way to get started! There are so many great financing options available when you can owner-occupy!

So as the others have mentioned your margins are a little tight. However, as someone who is here in SA, I know how hard it has become to find great deals. And I also know that Alta Vista is a great up and coming area, as are all the neighborhoods surrounding downtown. I believe that you will have the ability to raise rents even higher over the next 2 or 3 years which should improve you cashflow, especially after you move out and rent out the 4th unit. Also, you should never buy just for appreciation, however, that area is set to see strong appreciation over the next few years as the development of the downtown area continues. Check out BP Podcast 204 with Chris Gill if you want to hear more about the future of downtown SA.

If you haven't spoken to the seller yet, I would still try to negotiate a little. Even if you can get him down $5-10k, that should help to sweeten this deal for you. Play up the fact that you're a veteran, a teacher, and a new investor and maybe that will work.

Also, since you're a veteran, if you have a disability rating from the VA, check with the county assessor because you may be exempt from paying property taxes or at least qualify for a reduced rate. That would also really improve this deal for you.

Congrats again and good luck!