Thursday, February 01, 2007

Details Of OK Purchase

Per Doug O's request, here are some of the more pertinent details of the purchase. This is a three bedroom, single family house that is currently leased through November 1, 2007 at $750 per month. It's 1,815 square feet and has been recently remodeled. Purchase price is $77,000. Comps are as high as $89,000. Taxes are around $375 per year and insurance is around $465 per year. Based on my calculations, I think I can cashflow near $200 per month with an ROI of around 20%.
The seller is going to be the property manager for 10% of the gross monthly rent. I trust the property manager. I think she's one of the hardest working people I've met. In fact, if you read Building An Empire, you know the person I am talking about!


Amillionby40 said...

Sounds like a good investment. A solid ROI and a possible value price. The fact that you have someone to act as a property manager and that you trust that person is SO important. Congrats! As a side note, wish our taxes were so low!

Steve said...

Great job! Wish I could have bought one of her properties, but the planets weren't aligned properly. As the previous poster said, having a trustworthy PM can make all the difference in the world. BOL!

Doug O said...

Shaun, that's awesome... Thanks for posting that info! :)
It definitely appears to be a solid deal. I am a huge fan of the old business addage that profits are made when you buy, not when you sell... As per the comps you mention, it certainly seems that you've made a good purchase here.
The next trick is to get some multi-family properties instead of SFH!

Anonymous said...

just curious, why did she sell and why cheaper than the comps?

Shaun said...

Doug - I know.. This time last year, I was eager to get into apartments, but I think I'm going to work on getting three or four SFHs and them 1031 them into in apartment.. Still keeping an eye on fourplexes though.

Anon - I can't really speak for all the reasons she is selling, but I do know she is looking to get out of SFHs and into commercial properties. As for pricing, she probably wanted to make it attractive to another investor. I doubt many investors are going to buy at full price.

Derek Guyer said...


I'd encourage you to run the numbers a little different, just to be safe. When I ran them, the cash flow came out to $51/month. This is what I would pull out:

$750 Rents

-$ 31 Taxes
-$ 39 Insurance
-$ 38 Maintenance (5%)
-$ 75 Management (10%)
-$ 63 Vacancy Loss (1 month divided over 112 months)
-$453 Mortgage (30 years @ 7% on 90LTV)

=$ 51 Net Cash Flow

I'm more conservative than some people are when running numbers, but it has saved me a lot of money. If that renter moves out at the end of the lease, even with your numbers, and you've got a month where it's vacant, your cash flow drops to $140/month...and you still haven't figured in costs to clean the place up to get it rented back out again.

I hope that doesn't sound negative. You're running numbers better than most people do.

Shaun said...

Well, each person has their own assumptions they use when figuring numbers. Here's where our assumptions differ:

The property has recently been completely refurbished, including all new appliances. The only maintenance that has been needed so far, according to the current owner, was a new mailbox which cost $60. So I am not really including any maintenance fee in my calculations. This isn't to say I won't start building a maintenance reserve fund, though. I just happen to have a very detailed history of the property :-)

I'm using a 6.25%, < 80% LTV, 30 year mortgage. (Note: cashflow would be even less using your assumptions because a 90% LTV loan would require PMI, thus increasing the cost.) My interest rate is based on the rates available to me at a local lender. I may or may not be able to get these rates in OK. (Conversely, I may be able to use the local lender on an out of state property..) I am also using a more exact principle amount value, based on what I am willing to put down (about $10,000).

I did not include vacancy costs in my original calculations. The owner says it rented really fast and I am not too concerned with long vacancy times. I know, the more conservative of you will disagree with me on this point and, for other properties, I would also agree. But this one is in really nice shape and I don't see it taking long to rent.

So my numbers are:

$750 rent

-$ 31 taxes (although this will likely $-83, based on info I found out today - see next post)

-$ 39 insurance
-$ 75 management
-$412 mortgage

= $193 net cash flow. Using the estimated new tax figure, $141 cash flow.

But thanks for running the numbers. A second set of eyes is always good!

Steve said...

Do they include PMI on refi'd investor loans >80% LTV? I hadn't thought of that before, but I guess it's good to know just in case.

Derek Guyer said...

Good call, man. I forgot about the PMI when I put that in. There goes my conservativism, huh?

I hope you don't need that vacancy loss figure in there. I haven't had to use it much, but I always try to be conservative in that area just in case.

I bought a property like that one a couple of years ago and have been fortunate to not even have to pay for a property manager. I've received the payments on time every time without fail and have never heard anything from them. It's like a dream come true. The guy who sold it to me has a whole list of them and I intend on purchasing more because he's detailed like it seems your seller is. It takes a lot of worry out of the deal when you know you're dealing with someone who's got some integrity in their work ethic.

Sorry that second set of eyes were crossed there for a second...

Shaun said...

Steve - I think ANY loan that is > 80% LTV requires PMI. Of course, you can avoid it by getting your first at 80% and a second for whatever amount is left..

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