Charleston, SC - Deal Evaluation and Feedback

[Henry Murray]

Hi Bigger Pockets!

I've been a member for probably about a year now and have done a lot of listening to podcasts and reading forums and books in that time. I very much appreciate all the knowledge so freely shared on the forums! They’re seriously a gold mine for an aspiring investor like me!

I'm moving from Long Beach California to Charleston, South Carolina very soon for about a year for work. I've been saving up for a house for a couple years so I really want to make my move in REI when I get there. My plan right now was to look for an affordable 2-3BR/1.5-2BA single family house in a nice area with a good school district to buy. I don't really want to do a total remodel but I'm excited about putting in a little bit of TLC and sweat equity to do some basic stuff (painting, trim, flooring, replace appliances, outdoor cleanup, etc) to make it nicer and more appealing for myself (since I'll be living there for a while) and also for my future tenants after I move out.

I’ve been doing a little bit of looking around on the mls (via Zillow) just to try to get a feel for some price ranges in the different sections of the city and surrounding cities/towns and I think I might have found a pretty good deal but wanted to get some feedback on it and see what I’m missing and what I should be looking for.

Here are the details:

Location: Trailway Dr, Summerville, SC

List Price: $149,000 (assuming it was purchased for list price)

Down payment (20%): $29,800

Closing costs: $4,000

Total amount out of pocket: $33,800

Assumptions:

rental rate: $1,550/month (median rent for that area from rentometer.com)

Insurance rate: 0.50% of sale price (estimated, I haven’t gotten a quote on this)

tax rate: 2.03% for rental property (from Berkley County Website)

Vacancy/Loss %: 5%

Repairs %: 5% of Gross Revenue

Cap Expense rate: 7%

Prop Mgt fees: 10% of Gross Income

Mortgage interest rate: 4%

I have an excel calculator that I built to learn how to evaluate deals like this but I'll summarize the numbers below.  My gross revenue (after vacancy loss) is estimated to be $17,670 / year.

My total expenses (including taxes, insurance, maintenance/repairs, saving for cap expenses, property management fees, tenant placement fees (assuming new tenant every 2 years), annual inspections, and lease renewal fees) are estimated at $8,925 / year.

This leaves my NOI at $8,745 / year.

Assuming a 30 year fixed mortgage at 4.0%, my yearly debt service (interest and principal) would be $6,829.

This leaves me $1,916 of yearly cash flow or a cash on cash ROI of 5.7%. Including equity with the debt paydown this would be a ROI of 11.9%.

The home is advertised as in the finishing stages of being refurbished/upgraded with some finishing touches still needed on the outside (although it sounds like they intend to finish the work and have it move in ready before selling, I’m just going from a Zillow post here).  

It also looks to be in a good school district. From what I’ve heard the schools in Summerville are significantly better than North Charleston a few miles south.  It looks like its in an “Area of Minimal Flood Hazard” from the FIMA map but I’m not sure how to estimate flood insurance yet.  

Any and all feedback for me on this deal would be very much appreciated!!

Thanks for reading :)

-Henry