Author Topic: Advice needed on rental purchase from friend  (Read 210 times)

onemorebike

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Advice needed on rental purchase from friend
« on: September 06, 2017, 03:34:40 AM »
A few months back I zeroed in on a rental purchase possibility in my neighborhood but it fell through. I was a landlord several years back but was too far away to easily fix issues myself, so my rule for getting back into it required a property to be nearby. The problem? I live in a pretty nice neighborhood, so deals are hard to find.

Anyway, turns out my friend a few blocks away is selling a 2 bedroom bungalow. If they find the buyer, instead of their realtor, they pay only 1% versus 5.5%. when they told me about the house I was interested and took a look. It is in good shape, and had been well taken care of. They are asking $165,000. It would rent for ~1,350 and the mortgage + insurance after an upfront 41,000 investment would be roughly 850. My calculator says it would make about $3,500 a year after subtracting a number of costs. The neighborhood is only going to get better with time. Lots of development going on nearby, in the heart of a thriving City, etc. So long term potential value of the home is good. Additionally, I have a few days until they officially list it on the MLS, if I offer now they may accept before I have to deal with bidding which could likely drive up the home price. (Has been the case in this neighborhood) they also need an offer fast based on the contingency with another purchase. So:

1) is this property a good find?

2) do you have any ideas for how to work the deal so it is enticing enough to buyer to take offer without it putting on the market?

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Finallyunderstand

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Re: Advice needed on rental purchase from friend
« Reply #1 on: September 06, 2017, 07:15:30 AM »
Many landlords aim for monthly rent to equal or exceed 1% of the purchase price. 

If you're confident the price will rise that can help but nothing in real estate is tangible until it sells so it doesn't really mean much.

Are you managing the property yourself or having a company do it?  Companies take a cut.

Usually factor in 1-2% the cost of the home for upkeep annually.  Sometimes it's $0 but other times it's a new roof, furnace, etc and eats up a couple years worth of budget. 

How often do rentals turnover in the area?  If it's often then budget for a vacancy period.  If it's 2 weeks per year to "turn" the property in between tenants then that's almost 4% of your yearly rental income that doesn't come in. 

Just some things to think about.  Very rarely is the situation as clean cut as it appears to be on paper before the purchase.