All Forum Posts by: John Nelson

It's not in Detroit - it's in Royal Oak.

Thanks. How do you arrive at 130K?

Anybody?

This would be our first property. Am I doing these numbers right?

Owner will sell for 215K.
Gross rents = 2600
Expenses and NOI = 1300 (50% rule)
P&I = 1121 @ 4.75% 30 years

If financed 100%, we'd have 179 cash flow per month = $45 per door.

In reality, we're financing FHA with 3.5% down and would live in one of the units for the required year. After we move out, our P&I payment would be $1082, leaving us with $54 per door per month.

This seems like an okay deal to me considering the property is in a great neighborhood and will attract good tenants. The property has been well maintained and has a new furnace and roof. I think there is some potential to increase rents too.

What seems to screw it up though is that the owner pays gas and water ($2850 for 2009), and we'd have to pay ~$130 PMI each month because of our low downpayment.

The 50% rule doesn't take these expenses into account does it? If it doesn't, then it looks like we'd be cashflow negative? Right?

We would live in one of the units for at least a year as FHA stipulates, but I'm trying to see how this works out as an investment after we move out and are renting both units. So the "profit" I was calculating was if we had both units rented.

David, I have a pre-approval letter. When making an offer, would you recommend stating that you require a 10% cap rate to show how you arrived at the offer amount?

I'm not too concerned about using up my cash or borrowing capacity - would it be reasonable for me to put less weight on cap rate, and more weight on the return I get from what cash I actually out lay?

This would be our first house. Listed for 130K. Owner has records of renting the upper for 600 and the lower unit for 1000, making the total monthly income 1600/month. Neither unit is currently rented. We walked around the place last week and it's in decent shape, but outdated. Built in the 50's.

If expenses are 800/month, that leaves 800 for debt service. We're doing FHA financing with 3.5% down, so at 4.5% interest, P&I = $635.

800 - 635 = $165/month profit.

Did I do this analysis right? Am I using the 50% rule correctly? If we could get the property for closer to 115K, profit would be $240/month.

This seems like a good deal to me, but it's been on the market for a while. I am wondering why another investor hasn't already bought the place. What do you guys think?