Hello BiggerPockets, I am super excited to finally make my first post on a potential deal. I have spent the past 6 months or so acting like a sponge trying to soak up as much advice and information as possible. Now I feel it's time to take the leap and put the knowledge into action and begin really learning.
Here's the deal in question. It is an off-market, 3 bed 1 bath, 1100 sq/ft SFR I found on Craigslist. The house is located in Northwest Indiana just minutes from the expressway and shopping. I spoke with the owner and he is asking 85k. He said he bought it approx 4 years ago and replaced the roof, new carpet, siding, and HVAC. The property appears to be turn-key with little money needing to be invested initially. The owner said he is currently renting to family and he is renting for $1000/mo.
According to all the different websites (Zillow, Realtor, etc) homes in that neighborhood have sold anywhere between 88k-110k. I would conservatively estimate the ARV at 90k. And comparable rents range from 1100-1200/mo.
I plan to offer 78k but have ran my numbers on the asking price of 85k. With this being a turn-key property, my thought was if the numbers could work at the asking price they would get better if I could acquire the property for less.
Purchase Price: 85k
Closing Costs: 1700
Estimated Repairs: 5k (estimated on the high end)
Down Payment: 17k
Loan Amount: 68k
Amortized Over: 30 Years
Loan Interest: 5%
Monthly P&I: $365.04
Total Cash Needed: $22,700
Monthly Income: $1,000
Monthly Expenses:
Taxes: 1700/yr = $141.67/mo
CapEx: 8% = $80
Vacancy: 8% = $80
Management:10% = $100
Repairs: 5%= $50
Insurance: $70/mo?
Total Monthly Expenses: $886.71
At those numbers I am coming up with a COC ROI of 5.98%.
I ran those numbers based on my worst case assumptions: Paying full asking price, preparing for unexpected initial repairs, maintaining current rent, and just guessing at the insurance.
I believe I could potentially the increase the ROI by increasing rent to 1100/mo, not needing the initial 5k in repairs, and acquire for less. I plan to manage the property myself but still figured management in the figures to account for management in the future. I also assumed a lower CapEx rate due to all the major aspects of the house being repaired 4-5 years ago and my exit stragegy of only keeping the property for 5-8 years.
This will be an entry level rental for myself and I am ok with taking a smaller ROI in exchange for an education. I am trying to hedge my bets, however, and trying to live by Warren Buffets rules: "Rule number 1: Never lose money. Rule number 2: Never forget rule number 1."
I am super excited and look forward to any and all feed back.
