2 off market deals in West Texas! Should I purchase them?

[Jordan Sutherland]

Hey guys, I've been looking for my next SFR or small multi family deal for the past month. I'm pre-approved for a conventional loan with 20% down at 5% interest amortized over 30 years. I'm a realtor and look for deals on the MLS every day. It's been slim pickings in my local market lately! I have found two off market deals, through personal connections and i think both of these deals are worth investing in. I would love to hear your opinion on the potential investments! Both of them are in totally different neighborhoods of my hometown, Lubbock, TX. Based on analysis and comps, both properties are easily worth around $115,000-$120,000 each. I can purchase both for around $95,000-$100,000 each, and both homes will cashflow around $100/month each. Both are 3/2/2 Brick SFR's built in the 80's, and in good condition. The projected cash flow on these is not wonderful, but both deals have instant built in equity. Both of these homes also are on the outskirts of a growing city, in good B class neighborhoods, and should have great potential for long term appreciation. Both deals have so much potential, but I'm a little hesitant to go for it, because the cash flow is not that great. I have three rental units right now, and I'm trying to expand rapidly, but want to minimize my mistakes. Any cashflow I make will be directly reinvested into acquiring more rentals. These won't provide a whole lot of cash flow in the short term, but will still provide $100/month (conservatively) each while financed, and offer great potential for appreciation. Do you guys think I should pull the trigger? I appreciate any input you guys have! Thanks!

[Jordan Sutherland]

Thanks for the input @Brian Mathews! When I say they will cash flow $100/month, that accounts for an expected average of all expenses including: mortgage, taxes, insurance, vacancy, repairs, capital expenditures, etc. I calculate almost exactly like Brandon Turner suggests, so if something like an HVAC unit needs to be replaced, I've budgeted for that, and will gladly have it replaced. I'm in it for the long run, so for the long term, even with crazy expenses like that, it should still net $100 month. Also, Lubbock is rapidly growing, and is growing in the direction of these properties. I would be seriously expecting about $4,000/year appreciation at least on these properties. And I also see the rents going up $50/year over the next few years, while my payment would remain the same. There should not be a ton of cashflow immidiately, especially if major problems come up soon, but over a few years, it should be at least $100/door/month with good potential for appreciation and some great instant equity upon purchase.