I am interested in a property that is an REO. It appraises (according to TAD) at $57K. The bank is asking $77k. I want to demolish the existing bidg, built in 1914 and replace it with a duplex that will cost a little less than $180 to buid. I intend to split the cost of paying back the loan by 1/2 in rent. My question is should I do this deal w/o equity in this property or wait for another deal? ???
Unless your cash flow is beyond what you ever imagined, I would not suggest buying a property without some equity.
You need exit strategies when going into any property and one of the most important strategies is having good equity for a quick sale when needed.
What will a place like that rent for in that area? How can a market, with that cheap of a building, justify rents high enough to cover the expenses of a $180k duplex plus the land costs?
I’m not being negative, it just doesn’t sound like things are adding up well from the limited info we’ve got.
Rent for this area ranges from $600-900/mo
I just ran through the number estimating them low for you to consider. Looking at them from this view doesn’t look good and these are very loose numbers in many ways. Rents are the best they could be, the taxes and insurance are probably very low, the property management is only figured at 8% of the gross rents, the maintenance is only figured at 5% of them and the interest rate is at 7% and should probably be more like 8% or 9%.
Total Purchase Price w/ Rehab: $187,200
Monthly Rents: $1,800
2005 Semi-Taxes: $100
Insurance (Estimated): $183
Property Maintenance: $90
Property Management: $144
Vacancy Loss (One Month): $150
1st Mortgage (30 yrs) @ 90%: 7.0% $1,101
2nd Mo. Mort. Payment @ 10%: 7.0% $122
Total Expenses w/ Debt Service: $1,890
Monthly Net Income: -$90
Annual Net Income: -$1,086
I hope that’s helpful.
Derek that is very helpful. Let me pose another scenario for the same property; scratch the duplex and rehab to existing single family resid. built in 1914 3-1 to rent at $ 600- 800/mo?
If you bought it for $60k and put $20k in rehab, with closing costs and everything else rolled into the mortgage, here’s an idea of the cash flow:
Total Purchase Price w/ Rehab: $83,200
Monthly Rents: $800
2005 Semi-Taxes: $100
Insurance (Estimated): $82
Property Maintenance: $40
Property Management: $64
Vacancy Loss (One Month): $67
1st Mortgage (30 yrs) @ 90%: 7.0% $489
2nd Mo. Mort. Payment @ 10%: 7.0% $54
Total Expenses w/ Debt Service: $896
Monthly Net Income Upon Full Estimated Rehab: -$96
Annual Net Income Upon Full Estimated Rehab: -$1,149
Well, I guess that property is a dud no matter how you look at it. Thanks fo the info.