Author Topic: Help Analyzing Rental Property Opportunity  (Read 574 times)

COlady

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Help Analyzing Rental Property Opportunity
« on: September 24, 2018, 11:02:09 AM »
Please help me decide whether or not to buy this property.  I'll provide the facts I think are pertinent, if you have other questions/points please let me know.

 - 3 bed, 2 bath townhouse with single garage located in small town WY
 - Cost $125,000. Purchasing from close friend that needs the cash. This is market price, wouldn't be getting a friend deal but would be purchasing without a realtor so might ask for 3% off since I wouldn't have a buyer's agent and she doesn't have a seller's agent.
 - Recently painted and has new carpet, in rental ready condition
 - located 4 hours away from where I live (Colorado) but I have family and a number of friends that would be willing to check on the place for me. I could even throw some money to them (would be cheaper and better use of time than driving 4 hours).
 - Oilfield activity is picking up around this city in WY with news of thousands of wells being drilled in the area.  I spoke to 3 realtors who told me there are wait lists for rentals.
 - I have never owned a rental but would like to diversify as all our money is in the market.
 - Could rent property for $1,000/month easily, possibly up to $1,300 or $1,400/month
 - Property tax is $600 per year, insurance also $600ish.  No state tax in WY.
 - ROI if purchased in cash outright = 8.64% on low side , 11.52% high side, I think realistically around 9.5% to 10%. Don't really want to tie up the cash but have it.
 - Could get loan at 5.2% with 25% down. ROI:

Rental Rev 12,000
RE Tax (600)
Ins (600)
Int Exp on $93,750 @ 5.2% = ($4,875)
Net Income $5,925
Cap invest $31,250
ROI  = 18.96%

I need to find out what closing costs would be for the loan...that is of course not factored in. 

Downside: Renting to oilfield service guys is going to be messy. There is a real chance they would trash the place.  Would do background and credit check, first and last months deposit. Thoughts?

My personal financial situation since that's always a factor in these discussions:

Married 34 and 36 years old. 2 young kids.

Assets:
401k accounts $625,000
Inherited IRA (held in my name only) $541,000
Roth IRAs $41,000
Inherited Taxable  (held in my name only) $450,000
Joint Investment account $232,000
FMV primary res $420,000
Total Assets: $2,309,000

Liabilities:
Mortgage @ 4.1% ($130,000)
Car Loan @2.2% ($7,000)
Total Liabilities: ($137,000)

Net Worth: $2,172,000

 - Would purchase property with my inherited funds in my name only to avoid co-mingling with husband. Relationship is good and stable but don't want to co-mingle.
 - We will be upgrading our house in approximately 18 months so will need some cash. If I purchase this rental I think it would be best to get a loan. Thoughts?
 - My mom owns a similar townhouse half a mile away from townhouse I'm looking at and will be selling in about 12-14 months to move closer to us. Assuming the first rental went well, I would buy my mom's property as well.

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #1 on: September 24, 2018, 11:26:11 AM »
This probably should have been posted in the real estate section. Feel free to move it! I don't think I can...

tralfamadorian

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Re: Help Analyzing Rental Property Opportunity
« Reply #2 on: September 24, 2018, 11:55:21 AM »
It looks like it may have potential if the higher rents pan out but don't forget to include vacancy, management, repairs and capex in your ROI calculations. Quick back of the envelope:

Rent: $1000

PITIA: $614.79
Vacancy: $100 (even if there is a waitlist for rentals, there will be a time when the property is vacant for maintenance/repairs between tenants)
Management: $100
Repairs: $100
CapEx: $100

Net: -$14.79/mo

But if you can get $1200/mo, then it goes up to $185.21/mo or 7.11% plus tax benefits. Did you talk with the three realtors about rent amounts? If you can provide them with some pictures, I would expect someone who actively works in that rental market to give a much more narrow window than $1000-$1400.

frugalone

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Re: Help Analyzing Rental Property Opportunity
« Reply #3 on: September 24, 2018, 12:03:41 PM »
I have been a LL for over 26 years.  Located in OH where we have been dealing with the boom for years. Just my experience with Oilfield guys... don't do it.  They party like Prince since the wives aren't around.  Plus you will get 4 or 5 bonus tenants because--hey we have a floor, bathtub, sofa open.  Especially being 4 hours away.  NO NO NO.

frugaliknowit

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Re: Help Analyzing Rental Property Opportunity
« Reply #4 on: September 24, 2018, 01:31:31 PM »
Your analysis is incomplete.  You are assuming no turnover, no expenses other than taxes, insurance and interest.  With those assumptions, every real estate deal looks great.

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #5 on: September 24, 2018, 04:10:19 PM »
Better? Opinions?

Low   Mid   High
Rent   13,200.00    14,400.00    15,600.00
RE Tax   (600.00)   (600.00)   (600.00)
Insurance   (600.00)   (600.00)   (600.00)
Repairs & Maint.   (2,000.00)   (2,000.00)   (2,000.00)
Turnover   (1,100.00)   (1,200.00)   (1,300.00)
Interest Expense   (4,914.00)   (4,914.00)   (4,914.00)
Net Profit   3,986.00    5,086.00    6,186.00
         
Cap Invest   31,500.00    31,500.00    31,500.00
ROI   12.65%   16.15%   19.64%
         
         
Depreciation   (4,352.73)   (4,352.73)   (4,352.73)
Net Income/(Loss)   (366.73)   733.27    1,833.27

COlady

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Re: Help Analyzing Rental Property Opportunity
« Reply #6 on: September 24, 2018, 04:12:08 PM »
Not worth it for the possible $6,000 bucks?