A potential first deal!

[Karah Collins]

Hi all,

I’ve been listening to the podcast for about two weeks and I’m hooked! I think I may have found my first deal.

It’s a two story 4/2 home zoned as multifamily, but currently being rented by one family. It is more lucrative to turn it into a duplex, so I would need to add a second kitchen. It’s in a class B neighborhood and has a brewery, coffee shop, and pottery studio within walking distance of the home. The tax valuation of the home is current and up to date. Here are the numbers:

4/2 SFH to be converted to (2)-2/1 MFH

Purchase Price: $100,000

% Down: $10,000 30 yr fixed; 3.504%

Taxes: $4995/yr ; $416/mo (valuated based on a property value assessment of $138k in 2018)

P&I: $404

Property manager: $150 (10% of current rent I’m assuming)

Insurance: $35

Mortgage Insurance: $47

Monthly Payment: $1052

Utilities: Tenant pays all! However, home is heated with oil. The tenant is responsible for filling the tank.

Comps: $1100-1300/mo (current tenant pays $1500 for whole house)

ARV: appears to be .72 based 2018 assessment

Even if I assume the current tenant stays, I believe I would still be cash flowing $448. Realistically a bit less to allow for maintenance, etc. If made the home into a multifamily once more, I would be cash flowing around $1000.

Moreover, neighboring homes are estimated to have a value of $140k-$160k. In many cases they have one fewer bedroom. This seems to be a great opportunity for a favorable cash out refinance and a big step to a next property!

After a call with the realtor this morning, I was informed that though there are no photos, if I can send proof of finances, we could go see the place this weekend. I would like to have the home inspected to verify the life left on the siding, roof, etc.

I am not adverse to a project, and can see the post rehab light at the end of the tunnel. Assuming these factors aren’t a deal breaker, I would like to keep the existing tenant while I raise capital for a renovation to bring it back to a duplex. I see no reason to rush if it’s continuing to cash flow during this time. It would give me time to find a reputable contractor and accurately budget the repairs I will do.

Considering that the property comes with an existing tenant, an existing property manager, and is oil heated, is it a liability? Should also mention that the agent who I called regarding the property is also a buyer agent. Do you typically bring in a seller representative?

I did not expect for the real estate bug to bite me so quickly and would have never thought I would be trying to buy right now! I have yet to pre-qualify myself for a mortgage so plan to do that today. Hopefully this will light the fire under me to buy soon even if this deal doesn’t work out.

Am I crazy, or have I found a deal?? Would also appreciate any input on next steps I should take in this process, specifically regarding an out-clause pending inspection, etc.