Is this property worth pursuing?

Question

Hi,
I am trying to buy a townhome for 40000 dollars. The rent around the area of this kind is 800.
Tax is 2600 and insurance I am guessing is 500 dollars. I am getting a rate of (25 percent down) 4.3 percent for 15 years.
I would like to know if this is a good deal worth pursuing. I appreciate any feedback. 
My desired cap rate is 10-15.
Thanks

Jon Klaus · Answer

Well, from what you've provided, it meets the 2% rule, so it could be a decent cash flower.  You'll also have "equity flow," with the faster amortization of a 15 year mortgage.

More about the 2% rule: http://www.youtube.com/watch?v=OmozfQ8UinA
:

Jack Srimani · Answer

Hi David,
Thanks for your feedback. I have done comparable property rents and the number sounds fine. I have driven around the property within few blocks and I have not seen much of rent sign. This leads me to believe that there are not many rentals available in the area. This is a decent middle class area. I need to double check on the HOA. My realtor told me there is none. Actually this is a bank owned property. The price was just double about four years back. Yes I do believe I am not paying more than it is worthe. I got the rate from a local bank here in Rockford IL. I have a good credit score and have not yet invested in any market (e.g. stock, bond or real estate).

David Beard · Answer

Jack,

Have you called For Rent signs and researched rent rates on Craigs List to verify the rental amount?  Are you familiar enough with the area to determine how easily it will be to rent at your stated $800?

Aren't townhomes connected in such a way that HOA fees are necessary to pay for new roof, etc.  How can there be none?

Have you pulled sales comps through your tax assessor site or the MLS to ensure that you're not overpaying?

Also, would you mind sharing where you're getting 4.375% fixed for 15 years on investment property?  Sounds amazingly low.

Jack Srimani · Answer

Hi Brenden,
THis does not need an extensive rehab. Only painting and fixing one of the cabinet door in kitchen. I do have some cash reserve in the event I cannot rent it immediately. 
Thanks for your input. Anybody else???

Brendan J. · Answer

Any idea on the scope of rehab needed to make it rentable? Do you have enough cash reserves for the unexpected surprises during the rehab process as well as enough to cover the PITI for at least 6 months?

If so, it doesn't seem to be all that bad. I wouldn't stay awake at night.

Jack Srimani · Answer

Thanks Jon for your advise. By the way this townhouse does not have a HOA fees. Anybody else want to chip in!!

Jon Klaus · Answer

Welcome to BP, Ray.  Why don't you tell us a bit about yourself at New Members Introductions?

http://www.biggerpockets.com/forums/55-new-member-introductions

You're adding value from your very first post!

Jack Srimani · Answer

Jon,
Yes that is an investment rate I am getting currently which is really a great rate. Ray I understand your concern here. I do not also want to be rushed. However I was looking some help to see if cash flow will be in the positive and the cash on cash return. You have made a good point. I will check with my insurance agent to run a quote. That will dispel all my insurance guesses. To rest of the folks my question will be ' This is a asset or liability'. Thanks

Ray Hasper · Answer

New to the site, but first off, tell the realtor to go ahead and sell it, you'll just go find another at the thousands that are out there from someone else.  He's just trying to get his comission as fast has he/she can, typical trick.
Never 'guess' or 'assume' insurance costs this affects your cap rate, its part of your reacurring annual expenses.  I've seen properties that rate a $500 insurance premium and one that looks almost the same a couple places away in the same area that pulled a $1200 premium.  
Your rate sounds great and I agree with what Jon is asking.  There are also a lot of "...are there any ????" (repairs, liens, etc...) do your due diligence.  Do you have a renter lined up or will you have to do repairs (losing rental income) before making it rentable?
I'm a big believer in CYA, so I apologize if this seems tutorial.

Jon Klaus · Answer

Jack, do you know if there is an HOA and what the fee is?  Your financing looks especially good--are you sure that's the rate for an investor?

Is this property worth pursuing?

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