Analyzed Deals

We have analyzed this deal to see how this particular triplex in Akron would be as a rental property. We try to research and analyze better than average deals for you to help save you time and money. You can read about what it is like researching properties for deals on your own in our article: Find Real Estate Deals is a Numbers Game.

Where is this property?

It is located in Akron, OH. 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 #3717 and they can give you the full details about this property and help you in purchasing it. This particular property was submitted to the Akron Real Estate Resources Website featuring real estate investor articles and local deals.

Run your own analysis on this particular property. Use our new, FREE Offer Generator real estate investor tool to change our assumptions and use your own.

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 Akron area.

Learn to find motivated sellers using marketing in Magnetic Motivated Seller Attraction Real Estate Investing. 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 #3717 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:

From the wholesaler: This deal includes an adjoining vacant lot worth in the range of $10K.

Read The Importance of Asking When Negotiating Real Estate Deals.

Property Details

• Bedrooms: 3
• Baths: 3.00
• Square Footage: 2,388 (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: $67/month based on $805 per year
• Insurance: $100/month (based on an estimate of $1,200 per year)
• Other Expenses: $0/month

Net Operating Income: $938.87/month

Repairs Needed

The estimated repairs are unknown for:

• new roof, gutters (cost unknown)
• refinish floors or floor coverings (cost unknown)
• paint interior and exterior (cost unknown)
• little plumbing (cost unknown)
• some windows (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 = $938.87
• Max loan for 100% financing with that payment: $148,540 minus closing costs and any repairs

Estimating Value

• Seller claims the value of the property is $75,000.
• Zillow claims the value of the property is $73,000. See Zillow Estimates for more information on why this can be misleadingly high or low.
• Seller is asking $32,000.
• 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.
    • If we really can buy the house for $32,000 and it does appraise for at least $75,000, then we are at 42.67% of value.

10% Down

• If we purchase it for $32,000, then a 10% down payment would be $3,200.
• Likely, we would then be financing 80% (that’s $25,600) on a first mortgage and then 10% (that’s $3,200) with a second mortgage with a higher interest rate.
  • Principal and interest payments on a $25,600 30 year fixed rate loan at 6.500% are: $162 per month
  • Principal and interest payments on a $3,200 30 year fixed rate loan at 9.000% are: $26 per month
  • That would leave us with a positive cash flow of $751/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 $3,200 as a down payment you’d see the following returns from the following benefits:
    • Cash Flow
      • $751/month times 12 months = $9,016 per year
      • $9,016 per year/$3,200 invested = 282% return on investment from estimated Cash Flow
    • Depreciation
      • $32,000 purchase price with 10% estimated land value leaves $28,800 for the value of the structures that we can depreciate
      • $28,800/27.5 years = $1,047 per year
      • Assuming a tax rate of about 33%, then a third is the benefit from depreciation
      • $349 per year/$3,200 invested = 10.91% return on investment from Depreciation
    • Principal Paydown
      • $25,600 loan pays down about $230 in the first year
      • $3,200 loan pays down about $29 in the first year
      • ($230 per year + $29)/$3,200 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 $32,000. 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.
      • $1,600 per year/$3,200 invested = 50.00% return on investment from Appreciation
    • Total from Cash Flow, Depreciation, Principal Paydown (first and second mortgages) and Appreciation
      • ($9,016 + $349 + $230 + $29 + $1,600)/$3,200 = 350.75% return on investment

20% Down

• If we purchase it for $32,000, then a 20% down payment would be $6,400.
• We would then be financing the balance of $25,600
  • Principal and interest payments on a $25,600 30 year fixed rate loan at 6.500% are: $162 per month
  • That would leave us with a positive cash flow of $777 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 $6,400 as a down payment you’d see the following returns from the following benefits:
    • Cash Flow
      • $777/month times 12 months = $9,325 per year
      • $9,325 per year/$6,400 invested = 145.70% return on investment from estimated Cash Flow
    • Depreciation
      • $32,000 purchase price with 10% estimated land value leaves $28,800 for the value of the structures that we can depreciate
      • $28,800/27.5 years = $1,047 per year
      • Assuming a tax rate of about 33%, then a third is the benefit from depreciation
      • $349 per year/$6,400 invested = 5.45% return on investment from Depreciation
    • Principal Paydown
      • $25,600 loan pays down about $230 in the first year
      • $230 per year/$6,400 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 $32,000. 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.
      • $1,600 per year/$6,400 invested = 25.00% return on investment from Appreciation
    • Total from Cash Flow, Depreciation, Principal Paydown and Appreciation
      • ($9,325 + $349 + $230 + $1,600)/$6,400 = 179.75% return on investment

For more information on this particular deal, please contact us about real estate Deal #3717.

Until my next post…

James

This entry was posted on Tuesday, November 18th, 2008 at 12:49 pm and is filed under Akron. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.