[Calc Review] Help me analyze this deal

[Arun G.]

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Hi All, 

Looking for some help in analyzing this deal.  Asking price is $69,900 but per my analysis I would need to negotiate down to $60,000 for it to be right.  Applying for a conventional loan and lender is telling me that it will be 25% down, fixed rate, and 30 year.  The interest rate is 5.25%.  The listing says that both units of the property are already rented.  Is this an advantage or a disadvantage? The property was built in 1904 so please also check my numbers for repairs.  

Thanks,

Arun

[Michael B.]

How many deals have you done? I think the closings costs sound WAY high with 4k. Insurance should also be more in the $70-$80 per month area for this kind of property. 

I also noticed that you put all kinds of deductions in % numbers on your cash flow. I don't think this is a good practice because you actually don't know these numbers. You can't do real estate small. If this is the only property that you will ever buy to rent it out, you will have to observe it without tapping into the cash flow for the next two years. Then you will get a feel for the asset's expenses. 

It looks like an OK deal to me especially for a novice investor. However, I wouldn't touch the CF until you scaled up enough to have reached 140% of all personal monthly expenses. Then, I also wouldn't be sitting on a mountain of money for capex,repairs, vacancy etc. If work comes up then you have 40% each month extra to pay off a credit line that covers the expenses. 

Don't think too much about the reserves right now. Just don't touch ANY of your asset's CF until you have a good sized portfolio. 

Buy and hold doesn't work with one rental alone.