Potential First Buy and Hold Rental Property - Oregon

[Doug Meeuwsen]

Good Afternoon BP.

I am a new investor from Hillsboro OR and believe to have found a potential first buy and hold rental property.  If you guys wouldn't mind, could you please look over my numbers and shoot as many holes in this deal as you can find.  I am comfortable/satisfied with potential deal location, schools, crime, etc however with this being my first, I would like a sounding board on the financials.

My business partner and I have been preapproved for a 30 year conventional loan at a rate of about 5%, with 20% down ($37,679).  Our mortgage broker said it's usually about a 0.5% rate increase above normal conventional rates due to this being an investment property.  Does that sound familiar to people?

After listening to the first 120 or so podcasts, my business partner and I are shooting for $100 dollars a month in cash flow (after expenses) assuming outside property management costs folded in even though we plan on doing our own property management for a while. 

Financials:

Rent - $1300/month ($15,600/year), Taxes - $2090/year, Insurance - $500/year, Maintenance - 12% of rent, Vacancy - 8.5 %, Property Management - 10% of rent, Utilities will be paid for by renter, Closing Costs covered by buyer - 3% ($5,652), and $2000 worth small repairs before being rent ready.

Given the above stated factors I calculate my annual Gross Income, and Expenses to be $14,851 and $3,942 yielding an NOI of $10,909.

At a purchase price of $188,393 ($45,000 below asking) I calculate the mortgage and interest to be $9,709/year ($809/month) yielding $1,200 a month in cash flow when compared to the NOI.

I calculate the ROI to be: Annual Cash flow of $1,200 / Cash needed of $45,330 ($37,679 + $5,652 + 2,000) = 2.65%. Lastly, if I include the principle being paid down by the renter in addition to the cash flow, I calculate a first year total ROI being 7.55%. I know this all assumes a purchase price $45k below asking however only at this level would be comfortable as a first time investor.

I really appreciate the sounding board and look forward to hearing what people have to say.  Thanks again.

Doug Meeuwsen