Hey guys - so I just put an offer in on a property and wanted to get people's advice.
The house is a brick 1,100 sf 3/1 built in 1997 that has gotten full replacement of roof, HVAC and major mechanicals, flooring, etc. all in the last 5 years. House is in a neighborhood zoned for "good" township schools in a major midwest market (Indianapolis). Should rent for $900-$1,000 and I offered $70k. List was $80k and seller came back at $76.5k. Just responded with $72k and willing to pay up to $74-$75k if pushed.
I'm modeling a rent of $925. As far as expenses, taxes are $1,700 per annum, I'm figuring $600 for annual insurance and I will be hiring a property manager and likely paying 10% annually. Assuming another $150 per annum for R&M + cap ex (I think this is likely conservative given all the recent capital invested), monthly unlevered cash flow should be ~$490. With an 80% mortgage at 4.25% and 30 year am, levered net cash flow should be $200 per month. Cap rate is ~8% and levered cash on cash return is ~16%. Not assuming any appreciation or rent growth.
While I can earn higher returns in worse neighborhoods, I like the solid 8% cap rate investment here given good neighborhood, good schools, house less than 20 years old and most big ticket items already taken care of. I have looked at a wide range of deals in various places on risk/return spectrum and I think this deal is considerably less risky than most I have seen and still a good cash on cash yield plus good experience for a new investor.
I have looked in a number of markets and my experience has generally been that to get a 9-10% cap rate type of property, you need to venture into worse areas with worse schools or buy $40k homes that will have constant repairs, etc. I think this deal strikes a nice balance and I will likely be more risk averse just for my first few.
Anyway, I'm interested to hear what you all think and if you know of a market where deals like this are plentiful or that better deals for similar risk profiles exist, please PM me and perhaps we can work together!
Thanks
