My first property offer. Tell me what you think please.

[Jesse Poll]

I just put in my first offer yesterday. Here it is. This property is not on the market yet. They will be asking

Asking $149k
Offer $140K
Total PITIMI $1050
To get this property I will probably have to pay full price.

Here are the rest of the numbers.

4 plex FHA loan so I will occupy 1 unit.
All leases in place.
Rents from the other 3 are $1850
Figure for monthly maintenance $200
Cash flow after expenses $600
This is not actually income. It will be banked to support future property expenses.

My purpose for this property is to gain experience and have a second home for free.

I was not sure how to evaluate this property because I live in one unit rent free.

I will manage the property myself and do most of the maintenance since I will be on site.

One other concern I have is that I will have to terminate one tenants lease within 60 days of purchasing the property.

I do not like this fact as they are all pretty new leases. Also I will contact an attorney to find out legalities with this.

To make up for terminating there lease I am thinking of giving them 60 days notice and free rent for those 60 days plus refund there deposit in full for the inconvenience. I am not sure about this part. I just want to make sure that it is a win-win for everyone. My thinking is that I am not counting on rents from that unit anyway and they were not expecting to have to move.

I would appreciate your feedback on this situation.

Thanks
Jesse

[Jon Holdman]

Yes, the "50% rule" includes property insurance.

I would evaluate this purely as a rental, first. I think you're getting about $620 per unit, so that's $2480 for all four units. That leaves $1240 for NOI (net operating income) after deducting 50% for vacancy, expenses and capital. I think you're saying its $900 for P&I and PMI. So, that gives you $340 a month cash flow.

Now, if you move into one unit, you have 100% "vacancy" on that unit. OTOH, you're not going to wreck your unit. So, the "50% rule" number for your unit goes up from $310 to the full $620. That makes your total expense go from $1240 to $1550 and reduces NOI to $930. That puts you just about break even. Not bad, considering you're living there for free.

Do these existing tenants have leases? If so, the leases will stay in place. You can't just kick someone out to move in.