First time investor - need your opinion on this property

[JDP]

Hello all,

I've been considering single family rental properties for several years with a goal of eventually obtaining enough properties where passive cash flow is sufficient to leave the workplace earlier than typical retirement age. I understand the additional time commitment that comes with each new property I acquire. I'm finally ready to take the leap. My approach will be to start small (older, cheaper properties) and slowly trade up to higher quality properties as I gain experience.

I'm considering the following property for my first. Can you please review and share your thoughts and feedback?

• Single family home built in 1959 - 3 bed, 1 bath
• Asking price is $99,000 - I would offer $85,000 (assume offer is accepted)
• My down payment will be 20% - $17,000
• I will mortgage the remaining 80% - $68,000 at 4.75% 30FIX - $355/mo.
• Estimated home owner's insurance - $89/mo.
• Property taxes - $92/mo.
• Current rent is $875/mo.
• Tenant has been there 2 years
• Current lease is through April 2018
• Tenant is responsible for everything except refrigerator and stove
• Property management fee is 8% of monthly rent
• Property is old, but HVAC, electrical, plumbing, roof, kitchen, bathroom all functioning in good condition
• Interior recently renovated
• Approximately $1K - $2K worth of minor exterior repairs will be needed at turn
• Neighborhood and schools aren't the best, but not terrible either
• Easy highway access, but not on a main road

I'm left with $269/mo. cash flow after subtracting PITI and the management fee from the current rent. That of course is assuming the $85K purchase price is accepted. I know I have to account for vacancy and repairs - this is where I'm a bit uncomfortable due to no prior experience. If I use 50% of monthly rent, that would put my cash flow in the negative. What do think about these numbers? Am I missing anything obvious? Do you need additional information?

Thanks so much for your feedback in advance!

[Thedudeabides]

It's looking pretty good.

I would put in 10% for vacancy (verify actuals in your area) and 10% for repairs.

Also, verify the age of the big ticket items. They all have a useful life. If the furnace is >=15 years, plan on replacement. Same for AC. Roof: 20-30 years.


Sent from my iPhone using Tapatalk

[JDP]

Thanks for your reply, Thedudeabides. Would you say it's okay for the rent to be less than 1% of the purchase price if the purchase price is about 5-10% below market value?

[Blindsquirrel]

   What makes it a good deal or not depends on the market you are in very much. Rust belt states will crush that on cash flow readily.  Highly recommend checking out bigger pockets website.

[Thedudeabides]

Thanks for your reply, Thedudeabides. Would you say it's okay for the rent to be less than 1% of the purchase price if the purchase price is about 5-10% below market value?

I would say that depends a lot on your market and future expectations for the market and your neighborhood.

There are definitely some markets where I would personally be very comfortable getting a little under 1% (e.g. Denver, Seattle, Austin, Portland). In this markets, I'd expect to see some appreciation as well, so cashflow might not be as important. However, in markets without much appreciation, I'd expect a bit more cashflow.

It also depends on your personal situation and portfolio goals. If you're looking for appreciation and you have liquid portfolio elsewhere, and you could afford to ride out a dip, then that's one thing. If a furnace breaks and you're having trouble coming up with the funds to fix, then that would be on the other side of the spectrum.

There are some markets where you could do better on cashflow, but for your market that might be a great deal.

[JDP]

   What makes it a good deal or not depends on the market you are in very much. Rust belt states will crush that on cash flow readily.  Highly recommend checking out bigger pockets website.

Blindsquirrel, thanks for letting me know about Bigger Pockets. I have spent a lot of time on their website these past few days and was able to answer a lot of my questions. Thanks!

[waltworks]

I'd assume something like $200/mo long term for maintenance and capital expenses. Then whack off 8% ($60/mo or so) for vacancy... and you're really not making money on this except through potential appreciation and some equity buildup over a long period of time. In bad years you might lose quite a bit of money, in good years you'll just barely profit.

Meh. The potential problems aren't worth the minimal returns, at least to me.

I'd pass, unless you think the area is about to gentrify or you want to personally live in the house at some point or something.

-W