Deal in the works, rip it apart.

[Andy Bailey]

Background: I am an insurance adjuster for homes and deal with repairs, making estimates, and contractors all day. Both over the phone and in person. 

Deal: My business partner who we will call TP (no not toilet paper), found the deal by conversation with his father in law. His FIL has a townhome with an HOA @ $95 a month. Comps in the area sold within a few days to 2 weeks all for $170k. The deal would be 140k FSBO with no agents (my first concern. I've only purchased primary residences) so no commissions to pay. The rent would be about 1300-1400. 2005 home and it was well maintained. Just saw updated photos today.

TPs sister-in-law has special needs and wants to stay in the home (my big concerns). I know family and business do not mix. TP has been very upfront that we are in the business to make money and if that does not work as a rental for any reason we would sell it and fast. 

Rental numbers

Income:	$1,375.00	$16,500.00
Mortgage Pay:	$601.24	$7,214.88
Vacancy (5%):	$68.75	$825.00
Management Fee (8%):	$104.50	$1,254.00
Property Tax:	$97.92	$1,175.00
Total Insurance:	$66.67	$800.00
HOA Fee:	$95.00	$1,140.00
Maintenance Cost:	$100.00	$1,200.00
Cash Flow:	$240.93	$2,891.12
Net Operating Income (NOI):	$842.17	$10,106.00

If we sold it after a year:

Return (IRR):	73.02% per year
Total Profit when Sold:	$22,635.53
Cash on Cash Return:	73.02%
Purchase Capitalization Rate:	7.22%
Total Rental Income:	$14,421.00
Total Mortgage Payments:	$7,214.88
Total Expenses:	$4,315.00
Total Net Operating Income:	$10,106.00

Assumptions:

140k with 20% down

3k closing costs. 

Rip it apart! Or would you do it?