Analyzed Deals

We have analyzed this deal to see how this particular single family home in Mission would be as a rental property.

Where is this property?

It is located in Mission, 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 #3865 and they can give you the full details about this property and help you in purchasing it. This particular property was submitted to the McAllen 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 Mission area.

Learn to find motivated sellers using marketing in Buying House with Bandit Signs. 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 #3865 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 agent: This is a corporate-owned, REO. Repairs have been completed on the property. House is only 2 years old and stands at 2,148 sq ft. With 3 bedrooms and 2.5 baths, this makes is it a great investment opportunity, as it has the space to accommodate a family generously. Located in highly desired Mission School district area.

Read Flipping Versus Buy and Hold.

Property Details

• Bedrooms: 3
• Baths: 2.50
• Square Footage: 2,148 (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: $1,000/month (see Rent Estimates for more info)
• 4.00% Vacancy Adjustment: $40/month (see Vacancy Estimates for more info)
• Net Rent: $960/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: $292/month based on $3,503 per year
• Insurance: $54/month (based on an estimate of $650 per year)
• Other Expenses: $0/month

Net Operating Income: $585.12/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 = $585.12
• Max loan for 100% financing with that payment: $92,572 minus closing costs and any repairs

Estimating Value

• Seller claims the value of the property is $140,000.
• Zillow claims the value of the property is $152,500. See Zillow Estimates for more information on why this can be misleadingly high or low.
• Seller is asking $104,900.
• 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 $104,900 and it does appraise for more than $140,000, then we are at 74.93% 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 $104,900, then a 10% down payment would be $10,490.
• Likely, we would then be financing 80% (that’s $83,920) on a first mortgage and then 10% (that’s $10,490) with a second mortgage with a higher interest rate.
  • Principal and interest payments on a $83,920 30 year fixed rate loan at 6.500% are: $530 per month
  • Principal and interest payments on a $10,490 30 year fixed rate loan at 9.000% are: $84 per month
  • That would leave us with a negative cash flow of -$30/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 $10,490 as a down payment you’d see the following returns from the following benefits:
    • Cash Flow
      • -$30/month times 12 months = -$357 per year
      • -$357 per year/$10,490 invested = -3% return on investment from estimated Cash Flow
    • Depreciation
      • $104,900 purchase price with 10% estimated land value leaves $94,410 for the value of the structures that we can depreciate
      • $94,410/27.5 years = $3,433 per year
      • Assuming a tax rate of about 33%, then a third is the benefit from depreciation
      • $1,144 per year/$10,490 invested = 10.91% return on investment from Depreciation
    • Principal Paydown
      • $83,920 loan pays down about $755 in the first year
      • $10,490 loan pays down about $94 in the first year
      • ($755 per year + $94)/$10,490 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 $104,900. 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.
      • $5,245 per year/$10,490 invested = 50.00% return on investment from Appreciation
    • Total from Cash Flow, Depreciation, Principal Paydown (first and second mortgages) and Appreciation
      • (-$357 + $1,144 + $755 + $94 + $5,245)/$10,490 = 65.61% return on investment (not including repairs)

20% Down

• If we purchase it for $104,900, then a 20% down payment would be $20,980.
• We would then be financing the balance of $83,920
  • Principal and interest payments on a $83,920 30 year fixed rate loan at 6.500% are: $530 per month
  • That would leave us with a positive cash flow of $55 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 $20,980 as a down payment you’d see the following returns from the following benefits:
    • Cash Flow
      • $55/month times 12 months = $656 per year
      • $656 per year/$20,980 invested = 3.13% return on investment from estimated Cash Flow
    • Depreciation
      • $104,900 purchase price with 10% estimated land value leaves $94,410 for the value of the structures that we can depreciate
      • $94,410/27.5 years = $3,433 per year
      • Assuming a tax rate of about 33%, then a third is the benefit from depreciation
      • $1,144 per year/$20,980 invested = 5.45% return on investment from Depreciation
    • Principal Paydown
      • $83,920 loan pays down about $755 in the first year
      • $755 per year/$20,980 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 $104,900. 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.
      • $5,245 per year/$20,980 invested = 25.00% return on investment from Appreciation
    • Total from Cash Flow, Depreciation, Principal Paydown and Appreciation
      • ($656 + $1,144 + $755 + $5,245)/$20,980 = 37.18% return on investment (excluding repairs)

For more information on this particular deal, please contact us about real estate Deal #3865.

Until my next post…

James

This entry was posted on Thursday, December 4th, 2008 at 12:01 pm and is filed under McAllen. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.