Buy and Hold investment ARV problem

[Marcus Wallace]

Hey I have a seller that needs to get rid of this house because she is paying two mortgages its worth $160k and she owes $125k she is willing to do $130k and doesn't want to do a lease option. The rents in the area is around 1400 a month as this is a 3/2 with 1788 sqft would this be a good deal for a buy and hold investor??

[Jeff V.]

@Marcus Wallace

Based off what info you provided...

$130k is roughly 80% of FMV ($160k) which is a decent discount, not the greatest.

Market Rent is slightly over the 1% rule (1.07%), not much over...  Most people like to see 2% but not possible in all markets.

Based off of the $1400/mo rent, using the 50% rule $700 would go out in expenses such as taxes, insurance, vacancy, maintenance and repairs leaving the remainder for debt service and profit.

That would mean $8400 NOI Est. putting your CAP rate at 6.4%. Is that good or bad? dunno what your market dictates or the neighborhood the property is in.

Now for the financing...

130k Purchase Price

20% Down = $26000

Rate 5%

Term 30 yr fixed

PMT = $558

NOI(Monthly) - Debt Service = $142 Cashflow ($1704 Annually)

CoC = $1704 / $26000 = 6.5%

If you would invest $26,000 to buy 56k in equity and  increase your income by $142/month and also grow your net worth a few thousand a year thereafter...  then I'd say its definitely worth looking into.  That would all depend on your goals...  If that meets your baseline for a deal or not is up to you.

There are some people who would consider nothing less than $200 per door...  If that's your requirement then keep on walking or keep working on price or terms.

Either way you have some numbers to play with.

Jeff V