Is This a Good Deal?

Question

Happy Friday everyone! I'm looking into a couple properties around northeast Dallas, TX and I'm hoping you can tell me if I'm looking at my numbers right for one of them.  This would be my first deal in a rental property so I don't really know if I'm thinking of everything:

Purchase price: $55,000

Property Taxes: $1,350/yr

Insurance: Somewhere around $1,200 (***Too high, too low???)

15 year note with 20% down.

Monthly expenses: ~$515 not including M&R (probably around $575-600 if I just save maintenance costs each month)

Projected Rent Rate: $800

Does this seem like a solid start or should I keep looking?  Appreciate any advice you can provide.

John Leavelle · Answer

@Ben Forbus

Yes you can get a 30 year mortgage for investment properties.  Example of the benefit could be a payment of $210 based on a loan of $44,000 ($55,000 less 20% down payment) at 4% fixed APR.  That's a $85 boost in Cash Flow.

It appears you are saying your $515 monthly expenses is really your PITI.  There are several operating expenses that you must account for.  Vacancy, Property Management, Maintenance, CapEx, utilities, plus other miscellaneous expenses.  Those can easily add up to 35% of your monthly income or $280.   That might make your Cash Flow nonexistent with the 15 year mortgage.  You really need to identify these other key expenses to analyze the property correctly.

The cost to repair a foundation can vary widely.  For a pier and beam it would depend on if it only needs metal shims or cement footers.  Which could be as low as $2,000 up to $9,000 -$12,000.  You will need to have a contractor evaluate it and give you a bid.

John Leavelle · Answer

Howdy @Ben Forbus

Why are you doing a 15 yr verses 30 yr mortgage?  The longer term will provide better Cash Flow.  Also, what interest rate/mortgage payment were you projecting?

It helps if you would break down your expenses to individual items.  That way we can determine if you are including appropriate expenses and provide better responses.

Your rent to purchase ratio looks ok.  What type of property is it?  Have you determined an appropriate Market Value based on recently sold comps?  What condition is the property in?  Any Rehab required?

John Leavelle · Answer

@Ben Forbus

I think you will find the best luck with local banks and credit unions to finance your loans.

Franco Li · Answer

Hi there! If you can get a 30Y mortgage, thats probably your best strategy. I would also note the difference between getting a 30Y fixed and a 5 or 7Y ARM. Those will heavily (positively) impact your monthly cash flow, but I guess your interest rate view and risk appetite also comes into play!

Is This a Good Deal?

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