Author Topic: Foreclosure Rental Property?  (Read 438 times)

maz_phil

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Foreclosure Rental Property?
« on: July 06, 2018, 09:04:12 AM »
Hey Mustachians,

There is an inner city foreclosure property i am interested in. It is located in what some would consider a "not so great" area of town, but is fortunately just a few blocks from a major Virginian university so several of the homes around this property are rented out by students.

This is a foreclosure property evaluated around $90,000 and has 3 beds 1.5 bath. The home next door is 4 bed, 2 bath and is rented for $1700/month before utilities. Following the basic 1% rule, i figured I could estimate monthly costs to be around $900/month while renting it out for about $1350/month. I don't have any sort of substantial experience with construction, but would be willing to put in the work for what I would be comfortable with (painting, demo, flooring).

I will contact a title company to evaluate if there are any liens on the property, and have not been able to see the inside of the home. The exterior seems to be in fine condition.
Are there any additional steps or processes you would recommend? Is this type of home generally not a good buy?

Thanks,
Maz Phil

Mother Fussbudget

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Re: Foreclosure Rental Property?
« Reply #1 on: July 13, 2018, 09:26:33 AM »
A run through the back-of-the-envelope Turnkey Calculator spreadsheet (from BiggerPockets - this flavor courtesy of Cashflowdiaries.com) shows it to be a <quote> Winner <un-quote>, but do your own analysis to make sure you're comfortable with the results in your specific situation. 

The more complete SFH rental analysis sheet - also attached - might also be helpful to evaluate rental properties - just put in your own numbers.

When using tools like this, it's often advisable to put in your WORST CASE SCENARIO numbers.  If a property 'pencils in' with the worst case numbers, then you have a better chance of making it actually work in real-life.

All the best!  MFB



matchewed

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Re: Foreclosure Rental Property?
« Reply #2 on: July 16, 2018, 09:35:55 AM »
Consider inflating maintenance costs given the fact that it is a college rental. Cosmetic destruction is not unheard of in that particular market.

Xlar

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Re: Foreclosure Rental Property?
« Reply #3 on: July 16, 2018, 11:24:56 AM »
Is $90,000 the foreclosure purchase price? Or the price after repairs? When you say the property next door rents for $1700 before utilities, do you mean that the landlord pays the unities?

Also the 1% rule does not estimate expenses. Typically the 1% rule is used to estimate the rent that should be generated to make money and it is estimated that 50% of rent will go to expenses. Of course these are rules of thumb and should be used to evaluate if a property is worth more time. You should break out a detailed list of what your expenses are to make sure the numbers make sense. Include Maintenance, Cap Ex, Vacancy, Tax, Insurance, Property Management, etc.

tralfamadorian

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Re: Foreclosure Rental Property?
« Reply #4 on: July 16, 2018, 04:17:45 PM »
Not all students are created equal. Is this the neighborhood that the hardcore partiers live in at that college? Or the one that the international engineering students prefer? And how close are the other student rentals that you've identified? Next door? Next block? Two blocks? Students often use specific demarcation lines of acceptable neighborhoods that are not obvious to the outsider.