Analyzed Deals

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

Where is this property?

It is located in Austin, 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 #1724 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 Austin area.

Learn to find motivated sellers using marketing in Buying Houses with Post It Notes. 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 #1724 and they can give you the full details about this property and help you in purchasing it.

Property Details

• Bedrooms: 6
• Baths: 4.00
• Square Footage: 2,410 (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: $1,600/month (see Rent Estimates for more info)
• 4.00% Vacancy Adjustment: $64/month (see Vacancy Estimates for more info)
• Net Rent: $1,536/month

Expenses

• Management: Self Managed (we have assumed you will manage the property yourself for this analysis)
• Maintenance: $61/month (see maintenance estimates for info)
• Utilities: $0/month (tenant pays)
• Taxes: $230/month based on $2,758 per year
• Insurance: $75/month (based on an estimate of $900 per year)
• Other Expenses: $0/month

Net Operating Income: $1,169.73/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:

• Repairs TBD (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 = $1,169.73
• Max loan for 100% financing with that payment: $185,063 minus closing costs and any repairs

Estimating Value

• Seller claims the current as-is value is what they are asking.
• Zillow claims the value of the property is $158,000. See Zillow Estimates for more information on why this can be misleadingly high or low.
• Seller is asking $114,000.
• 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.
    • It would be close, but it might work for this house. If we really can buy the house for $114,000 and it does appraise for more than $114,000, then we are at 72.15% of value. I prefer to be well under 75% when trying to do these and the lower the better.

10% Down

• If we purchase it for $114,000, then a 10% down payment would be $11,400.
• Likely, we would then be financing 80% (that’s $91,200) on a first mortgage and then 10% (that’s $11,400) with a second mortgage with a higher interest rate.
  • Principal and interest payments on a $91,200 30 year fixed rate loan at 6.500% are: $576 per month
  • Principal and interest payments on a $11,400 30 year fixed rate loan at 9.000% are: $92 per month
  • That would leave us with a positive cash flow of $502/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 $11,400 as a down payment you’d see the following returns from the following benefits:
    • Cash Flow
      • $502/month times 12 months = $6,019 per year
      • $6,019 per year/$11,400 invested = 53% return on investment from estimated Cash Flow
    • Depreciation
      • $114,000 purchase price with 10% estimated land value leaves $102,600 for the value of the structures that we can depreciate
      • $102,600/27.5 years = $3,731 per year
      • Assuming a tax rate of about 33%, then a third is the benefit from depreciation
      • $1,244 per year/$11,400 invested = 10.91% return on investment from Depreciation
    • Principal Paydown
      • $91,200 loan pays down about $821 in the first year
      • $11,400 loan pays down about $103 in the first year
      • ($821 per year + $103)/$11,400 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 $114,000. 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.
      • $5,700 per year/$11,400 invested = 50.00% return on investment from Appreciation
    • Total from Cash Flow, Depreciation, Principal Paydown (first and second mortgages) and Appreciation
      • ($6,019 + $1,244 + $821 + $103 + $5,700)/$11,400 = 121.80% return on investment

20% Down

• If we purchase it for $114,000, then a 20% down payment would be $22,800.
• We would then be financing the balance of $91,200
  • Principal and interest payments on a $91,200 30 year fixed rate loan at 6.500% are: $576 per month
  • That would leave us with a positive cash flow of $593 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 $22,800 as a down payment you’d see the following returns from the following benefits:
    • Cash Flow
      • $593/month times 12 months = $7,119 per year
      • $7,119 per year/$22,800 invested = 31.23% return on investment from estimated Cash Flow
    • Depreciation
      • $114,000 purchase price with 10% estimated land value leaves $102,600 for the value of the structures that we can depreciate
      • $102,600/27.5 years = $3,731 per year
      • Assuming a tax rate of about 33%, then a third is the benefit from depreciation
      • $1,244 per year/$22,800 invested = 5.45% return on investment from Depreciation
    • Principal Paydown
      • $91,200 loan pays down about $821 in the first year
      • $821 per year/$22,800 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 $114,000. 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.
      • $5,700 per year/$22,800 invested = 25.00% return on investment from Appreciation
    • Total from Cash Flow, Depreciation, Principal Paydown and Appreciation
      • ($7,119 + $1,244 + $821 + $5,700)/$22,800 = 65.28% return on investment

For more information on this particular deal, please contact us about real estate Deal #1724.

Until my next post…

James

This entry was posted on Friday, June 27th, 2008 at 1:49 pm and is filed under Austin. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.