All Forum Posts by: Cory O'Dell

@Cory O'Dell the numbers don’t make much sense to me regardless of financing structure. You also didn’t mention the conditions of the structure or whether there are deferred maintenance issues non addressed by a semi-engaged landlord. What’s the rest of his portfolio look like?

@Cory O'Dell my answer is stick to your numbers. If everything works out the way you show, then you are getting about 10% cash on cash ROI. I don't get excited over 10% but especially when that's only $42. That being said however the upside would be you at the top of the list for his other properties but again he probably is doing the math just like you. If you are willing to take a 10% ROI on this one he will probably figure you will take 10% on all of them and price each house according to that logic.

Only you know if it's worth it or not and if things go even a little sideways $42/m doesn't leave much room for oops.  Personally I don't like it here's why.

Typical Duplex in C neighborhood in Dayton (where I invest) I can get all day for about $70K.

3/1 each side easily rents at $650 = $1300/m

traditional mortgage at 6.5% 30 year fixed payment is about $350/m

20% down payment = $14K with closing costs of about $1K = $15K out of pocket

Factoring all things like cap x, maintenance, vacancy, etc leaves about $715/m (1300x.55 rough numbers)

$715 - mortgage payment ( $350 ) = $365/m cash flow

$365 x 12 months = $4380 divided by $15,000 = 29% TRUE ROI!!!!

The only catch to this is you need 15K out of pocket not 4K.  I don't know if you have this now but if not I'd look for this type of deal and a partner before what you suggested...just my $.02

What's up BP!

So a backstory that will tie into this post. Our overarching REI goal is to acquire 7-10 properties in total and pay them all off in 10-15 years using the rental debt snowball method (with plentiful contributions from our W-2 jobs). We are currently in the "aggressive acquisition" stage. I'm active duty Air Force with about 10 years to go until retirement, which is driving that timeline/goal. We have acquired 3 properties so far, all single family homes. Our last deal now has us in recovery/capital rebuilding mode. It will take another year or so until we're ready to buy again using traditional financing just with the savings from our W-2 jobs.

However, our CPA has a client looking to slowly offload his entire portfolio in our area, starting with two in 2019: a duplex and a SFR. The seller offered the CPA his SFR (not as an investment but for him to actually live in), and with the seller's permission, the CPA referred us to him for a first look at the duplex. He's an older gentlemen in his late 70s with no real rush to sell, but we learned his motivation is just that his wife wants him to stop spending time "landlording" with his age. We also learned he doesn't want to work with a realtor and deal with putting it on the market and everything that comes along with that. Basically, it seems like he views it as an inconvenience and doesn't want to put in the effort to try to sell his portfolio.

The kicker here is he's willing to do seller financing, 30 year amortized with options to pay it off at 5 years and 10 years, since around then there should be enough equity to refinance (his words). He didn't say interest rate specifically but he did say just above normal market rate, so my guess is maybe 6-7%. He also said he requires "some" down but less than banks...it sounds like he's not really particular. My guess is it depends on the deal/buyer because he mentioned one time he did full 20% down. For our numbers sake, we are going to negotiate/plan for 5% down so he at least feels we have some skin in the game.

Now, the property. 2 bed/1 bath each side duplex built in 1957, he didn't say asking price but said (paraphrasing) "Zestimate says about $100k but you look at the market and see what you think"...his mentality has seemed pretty carefree about it all. It currently rents for $515 and $450 (he said he lowered the rent on one because of some tenant sob story). Both long-term renters...one has been there 10 years and the other 5 years. Current market rents seem to be between $575-650 depending on if the utilities are included or not. He's a genuine guy and sounds like he just doesn't care that much about maximizing his profits (properties are paid off), and the rents probably haven't been changed since they moved in, except one-side rent has even been lowered *eye roll*. We're assuming they're on month to month leases and will likely not renew if we purchase the property unless they pass our screening standards and are willing to pay market rent.

The numbers: with an $80k purchase price, 5% down, $550 rents for each side (trying to be conservative), 6.5% interest, property taxes $2000 per year, insurance $650 per year, then including the normal percentages for vacancy/maintenance/cap-ex/PM, and the water bill of approx. $80 per month (his info), cash flow per month is $42. Not even close to what we would usually shoot for in an investment.

However, using seller financing would allow us to purchase the property when we otherwise wouldn't be able to, and looking at our overall goals, if we wait to buy one property per year from saving our W-2 income we wouldn't realistically be able to "finish" the acquisition stage and start paying them down for maybe 7-8 years, plus another 10-15 years to actually pay them all off. Basically the math just doesn't work for our goals at the current acquisition rate.

@Brandon Frulla Thank you! The 5% program I used has similar requirements as an FHA with regards to owner occupancy. The differences are there is no formal inspection and PMI will go away after I hit 20% equity so I will not need to refinance. With FHA, PMI exists for the life of the loan.

@Cory O'Dell Thank you as well! The house was fully occupied by tenants with term leases in place. I will be moving in once the first lease expires. Also, the $24K I invested went towards a down payment and closing costs. Most of the rehab needed was performed before closing by the seller at my request (mostly minor things).