20 May 2008
The First Deal…hopefully
In a previous post, I discussed the preparation that we have been going through over the last year or so, but how we are just now getting started. Today, I want to give you a few details about the deal that we’re working on and get your reactions and feedback. Advice from those who know more is always appreciated. Disclosure: These numbers are not the actual numbers, I factored all numbers to more round figures for easier comprehension.
Almost a year ago, I inquired about a property on Craigslist that was for sale. It was a fourplex and from the pictures, it seemed to be in reasonable condition, with some need of rehab. At the time, we weren’t ready to move, so I just passed up the opportunity. Well, a month or so ago, the seller contacted me and said that they were putting it up for sale again and wondered if I was interested. I looked at the info again, and the numbers really seemed to make sense. We scheduled a viewing that evening. When we asked the seller when they needed to close, the response was “Yesterday”; not a surprise. With this in mind, we submitted an offer to them the next morning. What was a surprise is that we then spent the next week or two haggling over terms. I guess they weren’t in that big of a hurry after all. It was obvious that the seller was trying to get the price up by telling us that they had higher offers, although for some reason they ended up taking ours instead of the higher ones…hmmm. Eventually we did get a contract signed, although it was a huge pain as they continued to try to change minor terms, such as closing date, contingencies, etc.
Here are some of the details:
Sale Price: 100,000
Rent per Unit: $750 (3,000 total)
Down Payment: $20,000
Repairs needed: $20,000
Here is a rough breakdown of my potential estimates:
Loan P&I:$500
Taxes: $265
Insurance: $100
Repairs: $200
Vacancies: $250
Management: $365
That leaves over $1,300 a month in potential cash flow from the start. That’s before depreciation, equity buildup and appreciation. Even with $40,000 out of our pockets up-front, that could be recouped within 2.5 years. To us, this seemed like a no-brainer deal. As I stated in my Hard Money post, getting this property with no money out of our pockets was going to be a difficult ordeal.
What do you think about what you’ve heard so far? Well, stay tuned for tomorrow when I’ll give you the other side of the story. There are definitely some downsides to the deal as well. I’ll discuss the risk and rewards of this property as well as update you on the status of the closing.
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