Analyzed Deals

We have analyzed this deal to see how this particular single family home in Killeen would be as a rental property. Read the article Income, Depreciation, Equity Build Up, Appreciation and Leverage in Deal Analysis for an overview of how I do the deal analysis below.

Where is this property?

It is located in Killeen, TX. The property address is kept private to preserve the deals for our members. To work with our preferred investor friendly real estate agent/broker for this deal, contact us about Deal #4126 and they can give you the full details about this property and help you in purchasing it. This particular property was submitted to the Killeen Real Estate Resources Website featuring real estate investor articles and local deals.

How did we find this property?

We found this property from one of our real estate investor friendly agents/brokers or one of the real estate investor wholesalers we know in the Killeen area.

Learn to find motivated sellers using marketing in Buying Houses with Oversize Post Cards. This CD is included as part of the 68 CD Ultimate Real Estate Investor Package that you get when you purchase any house we promote on the website through our recommended real estate agent or broker. To work with our preferred investor friendly real estate agent/broker for this deal, contact us about real estate Deal #4126 and they can give you the full details about this property and help you in purchasing it.

Property Details

• Bedrooms: 3
• Baths: 1.75
• Square Footage: 1,563 (see square footage estimates for info)
• All information is deemed reliable, but is pulled from tax records, real estate agent, zillow or the seller.

Income

• Gross Rent: $750/month (see Rent Estimates for more info)
• 4.00% Vacancy Adjustment: $30/month (see Vacancy Estimates for more info)
• Net Rent: $720/month

Expenses

• Management: Self Managed (we have assumed you will manage the property yourself for this analysis)
• Maintenance: $29/month (see maintenance estimates for info)
• Utilities: $0/month (tenant pays)
• Taxes: $142/month based on $1,709 per year
• Insurance: $29/month (based on an estimate of $350 per year)
• Other Expenses: $0/month

Net Operating Income: $519.66/month

Repairs Needed

The estimated repairs are $1,500 for:

• Cleaning & some painting ($500)
• cabinets ($1,000)

All repairs are merely speculative estimates based on what the seller (or agent) has told us at this point. Before buying this house you should have it inspected and get quotes for actual repairs found.

Most We Can Pay For This House Based On NOI

• Investor Interest Rate: about 6.500% (see Interest Rate Estimates)
• 30 Year Amortization Fixed Interest Rate
• Principal and Interest Payment = NOI = $519.66
• Max loan for 100% financing with that payment: $82,216 minus closing costs and any repairs

Estimating Value

• Seller claims the value of the property is $64,000.
• Zillow claims the value of the property is $81,000. See Zillow Estimates for more information on why this can be misleadingly high or low.
• Seller is asking $58,000.
• You should analyze the property to determine your offer, but we will use the full asking price for our analysis.

Purchasing The House

Based on getting our full price offer accepted, that would be our purchase price. We will use that in our calculations below.

When buying with traditional financing, I have used just the purchase price (not the estimated repairs in the loan amount) because few loan programs allow you to borrow the purchase price and the repair money. To borrow the purchase price with repair money, you would need to use a hard money loan. So, realize that in my calculations, you still need to pay for repairs.

Nothing Down

• 100% Financing
• 100% financing for investment property is very difficult in our current credit market. There are ways to purchase property with no money down, but you will want to discuss these more creative methods with your lender and the real estate professional we can refer you to when you request information about this deal.
• Hard Money Then Rate and Term Refinance
• We can sometimes buy a house with a hard money loan and then immediately do a rate and term refinance to eliminate the really ugly 20% second mortgage that we describe above on the 100% financing analysis.
• To do this, we need to buy the property well below 80% loan to value.
• When you factor in our offer price of $58,000 (plus $1,500 in estimated repairs) I do not think this property would work for this, but you can learn about this strategy from Collect $8,000 Buying Real Estate Rentals. This particular house with estimated repairs would be at about 92.97% of what the seller estimates value to be.

10% Down

• If we purchase it for $58,000, then a 10% down payment would be $5,800.
• Likely, we would then be financing 80% (that’s $46,400) on a first mortgage and then 10% (that’s $5,800) with a second mortgage with a higher interest rate.
• Principal and interest payments on a $46,400 30 year fixed rate loan at 6.500% are: $293 per month
• Principal and interest payments on a $5,800 30 year fixed rate loan at 9.000% are: $47 per month
• That would leave us with a positive cash flow of $180/month when we subtract it from our Net Operating Income calculation which takes into account a reserve for maintenance and a 4.00% vacancy rate.
• Return on Investment Estimates
• IMPORTANT NOTE: These can change if any assumptions change.
• For putting up $5,800 as a down payment you’d see the following returns from the following benefits:
• Cash Flow
• $180/month times 12 months = $2,157 per year
• $2,157 per year/$5,800 invested = 37% return on investment from estimated Cash Flow
• Depreciation
• $58,000 purchase price with 10% estimated land value leaves $52,200 for the value of the structures that we can depreciate
• $52,200/27.5 years = $1,898 per year
• Assuming a tax rate of about 33%, then a third is the benefit from depreciation
• $633 per year/$5,800 invested = 10.91% return on investment from Depreciation
• Principal Paydown
• $46,400 loan pays down about $418 in the first year
• $5,800 loan pays down about $52 in the first year
• ($418 per year + $52)/$5,800 invested = 8.10% return on investment from Principal Paydown
• Appreciation
• Assuming a 5% appreciation rate. How did we come with that number? See Appreciation Rate Estimates for more info.
• Assuming the property is worth exactly what we paid for it $58,000. If the appraisal comes in lower then we will be forced to go back to the seller since it will affect our ability to get a loan on the property. If it is higher than our numbers will likely be much better.
• $2,900 per year/$5,800 invested = 50.00% return on investment from Appreciation
• Total from Cash Flow, Depreciation, Principal Paydown (first and second mortgages) and Appreciation
• ($2,157 + $633 + $418 + $52 + $2,900)/$5,800 = 106.19% return on investment (not including repairs)
• ($2,157 + $633 + $418 + $52 + $2,900)/($5,800 down + $1,500 in repairs) = 84.37% return on investment including repairs

20% Down

• If we purchase it for $58,000, then a 20% down payment would be $11,600.
• We would then be financing the balance of $46,400
• Principal and interest payments on a $46,400 30 year fixed rate loan at 6.500% are: $293 per month
• That would leave us with a positive cash flow of $226 when we subtract it from our Net Operating Income calculation which takes into account a reserve for maintenance and a 4.00% vacancy rate.
• Return on Investment Estimates
• IMPORTANT NOTE: These can change if any assumptions change.
• For putting up $11,600 as a down payment you’d see the following returns from the following benefits:
• Cash Flow
• $226/month times 12 months = $2,717 per year
• $2,717 per year/$11,600 invested = 23.42% return on investment from estimated Cash Flow
• Depreciation
• $58,000 purchase price with 10% estimated land value leaves $52,200 for the value of the structures that we can depreciate
• $52,200/27.5 years = $1,898 per year
• Assuming a tax rate of about 33%, then a third is the benefit from depreciation
• $633 per year/$11,600 invested = 5.45% return on investment from Depreciation
• Principal Paydown
• $46,400 loan pays down about $418 in the first year
• $418 per year/$11,600 invested = 3.60% return on investment from Principal Paydown
• Appreciation
• Assuming a 5% appreciation rate. How did we come with that number? See Appreciation Rate Estimates for more info.
• Assuming the property is worth exactly what we paid for it $58,000. If the appraisal comes in lower then we will be forced to go back to the seller since it will affect our ability to get a loan on the property. If it is higher than our numbers would be much better.
• $2,900 per year/$11,600 invested = 25.00% return on investment from Appreciation
• Total from Cash Flow, Depreciation, Principal Paydown and Appreciation
• ($2,717 + $633 + $418 + $2,900)/$11,600 = 57.47% return on investment (excluding repairs)
• ($2,717 + $633 + $418 + $2,900)/($11,600 down + $1,500 in repairs) = 50.89% return on investment including repairs

For more information on this particular deal, please contact us about real estate Deal #4126.

Until my next post…

James

This entry was posted on Wednesday, January 7th, 2009 at 9:57 am and is filed under Killeen. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.