Analyzed Deals

We have analyzed this deal to see how this particular duplex in Oregon would be as a rental property.

Where is this property?

It is located in Oregon, WI. 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 #1141 and they can give you the full details about this property and help you in purchasing it.

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 Oregon area.

Learn to find motivated sellers using marketing in Drink From The Fire Hose of Motivated Sellers: Deal Finding. 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 #1141 and they can give you the full details about this property and help you in purchasing it.

The Story

Before we get into our full analysis, here is some of the interesting story for this particular deal: Short sale condo - COMPLETELY negotiated & we have rec’d final payoff/approval from lender. Ready to close now. Best offer over $155k takes it. Beautiful, in move-in condition. We recarpeted, everything else is in new condition - built in 2004. Near Bergamont Golf Course.

Property Details

• Bedrooms: 3
• Baths: 2.00
• Square Footage: 1,952 (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: $1,200/month (see Rent Estimates for more info)
• 4.00% Vacancy Adjustment: $48/month (see Vacancy Estimates for more info)
• Net Rent: $1,152/month

Expenses

• Management: Self Managed (we have assumed you will manage the property yourself for this analysis)
• Maintenance: $46/month (see maintenance estimates for info)
• Utilities: $0/month (tenant pays)
• Taxes: $301/month based on $3,608 per year
• Insurance: $100/month (based on an estimate of $1,200 per year)
• Other Expenses: $120/month

Net Operating Income: $585.25/month

For more info on how I use Net Operating Income in my analysis, read the article, Real Estate Investing for Cash Flow on my blog.

Repairs Needed

The estimated repairs are unknown for:

• Lower level wired & ready to finish as secondary living space in-law suite (cost unknown)

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 = $585.25
• Max loan for 100% financing with that payment: $92,593 minus closing costs and any repairs

Estimating Value

• Seller claims the value of the property is $190,000.
• Zillow claims the value of the property is $216,000. See Zillow Estimates for more information on why this can be misleadingly high or low.
• Seller is asking $155,000.
• 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.

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 $155,000 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 would be at about 81.58% of what the seller estimates value to be.

10% Down

• If we purchase it for $155,000, then a 10% down payment would be $15,500.
• Likely, we would then be financing 80% (that’s $124,000) on a first mortgage and then 10% (that’s $15,500) with a second mortgage with a higher interest rate.
  • Principal and interest payments on a $124,000 30 year fixed rate loan at 6.500% are: $784 per month
  • Principal and interest payments on a $15,500 30 year fixed rate loan at 9.000% are: $125 per month
  • That would leave us with a negative cash flow of -$323/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 $15,500 as a down payment you’d see the following returns from the following benefits:
    • Cash Flow
      • -$323/month times 12 months = -$3,879 per year
      • -$3,879 per year/$15,500 invested = -25% return on investment from estimated Cash Flow
    • Depreciation
      • $155,000 purchase price with 10% estimated land value leaves $139,500 for the value of the structures that we can depreciate
      • $139,500/27.5 years = $5,073 per year
      • Assuming a tax rate of about 33%, then a third is the benefit from depreciation
      • $1,691 per year/$15,500 invested = 10.91% return on investment from Depreciation
    • Principal Paydown
      • $124,000 loan pays down about $1,116 in the first year
      • $15,500 loan pays down about $140 in the first year
      • ($1,116 per year + $140)/$15,500 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 $155,000. 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.
      • $7,750 per year/$15,500 invested = 50.00% return on investment from Appreciation
    • Total from Cash Flow, Depreciation, Principal Paydown (first and second mortgages) and Appreciation
      • (-$3,879 + $1,691 + $1,116 + $140 + $7,750)/$15,500 = 43.99% return on investment

20% Down

• If we purchase it for $155,000, then a 20% down payment would be $31,000.
• We would then be financing the balance of $124,000
  • Principal and interest payments on a $124,000 30 year fixed rate loan at 6.500% are: $784 per month
  • That would leave us with a negative cash flow of -$199 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 $31,000 as a down payment you’d see the following returns from the following benefits:
    • Cash Flow
      • -$199/month times 12 months = -$2,382 per year
      • -$2,382 per year/$31,000 invested = -7.68% return on investment from estimated Cash Flow
    • Depreciation
      • $155,000 purchase price with 10% estimated land value leaves $139,500 for the value of the structures that we can depreciate
      • $139,500/27.5 years = $5,073 per year
      • Assuming a tax rate of about 33%, then a third is the benefit from depreciation
      • $1,691 per year/$31,000 invested = 5.45% return on investment from Depreciation
    • Principal Paydown
      • $124,000 loan pays down about $1,116 in the first year
      • $1,116 per year/$31,000 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 $155,000. 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.
      • $7,750 per year/$31,000 invested = 25.00% return on investment from Appreciation
    • Total from Cash Flow, Depreciation, Principal Paydown and Appreciation
      • (-$2,382 + $1,691 + $1,116 + $7,750)/$31,000 = 26.37% return on investment

For more information on this particular deal, please contact us about real estate Deal #1141.

Until my next post…

James

This entry was posted on Wednesday, June 4th, 2008 at 8:20 pm and is filed under Madison. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.