[Calc Reciew] My First Home in Galveston

[Bruce C.]

After looking around we found our first home in Galveston, Tx. It is near Ave L and 37th, about 1.75 miles from the beach. It is a duplex with a 3-2 downstairs, 2-1 upstairs (and second living room). Already rented out. HOWEVER, the downstairs tenants are on housing assistance and the seller set up to pay their utilities. The bottom is 880 sqft, and they have months that they pay $400 in electricity!  

I got a standard loan at 5.625%

Purchase: 131.4k

20% down: 26.6 (24k from 401k)

Inspections/ Closing costs: 4,050

Rent: 2125 total (1275 up, 850 down)

Mortgage: 613

Ins&Taxes: 424

401k Repayment: 131

Utilities avg: 310 (based on 18 month bills)

Maintenance: $138 (estimate, will save as capex if not spent)

Cash / month after expense : $511

Assuming 10% vacancy and some clean up, I’m estimating $5100 a year in cash flow. If I treat the 401k money as if it were cash, that is a 16% return. I’m not sure how else to look at it. 

First priority will be reducing downstairs utility costs. I think buying a new window unit for them would pay for itself in 2 months tops. My realtor said I can talk to housing and try to get them to change the agreement so that they pay their own utilities. One other thing I noticed was they had 2 windows 1/3 open with the ac on. They don’t have skin in the game. Worst case we don’t renew month to month and rent it out at 1150 a month. That would be an extra 135 a month. 

I also have $1000 in minor repairs to do. It isn’t a fix up and refinance. Wasn’t ready for that. I do think we can convert the top to a 3-1 for relatively low cost and charge more for it. 

What do y’all think?  The area I think I could do better is the financing next time after talking to Moody Bank and BBVA. I think we did ok on the house and return, but I’d like to find something at a better price for house #2. 

[Bruce C.]

Well, in the first lesson learned category, mortgage company called yesterday and said there was a mistake - lender saw that unit was a duplex an now requires 25% down.  A little frustrating as we’d semt multiple documents and had discussions about this. At least in the long run all this does is tie up some of our capital as opposed to a loss of money. And the interest rate is a hair lower for the same cost. 

Closing should be on 8/1!  Hopefully no more set backs.