Good or bad investment

[Supersaver2013]

I am looking for some much needed information. I have had the opportunity to purchase a house for $120,000. I will be using this house as an investment property for rental income.  The house is in a good neighborhood and is in great condition. The seller is my friend and he said when he bought the property about four years ago that it appraised for $137,000 (this is probably true but I do not know if many houses in this area have sold for that amount). I would be getting 100% financing on this loan fixed at 3% for 15 years. If I have a renter lined up at $800 a month would this be a good investment? I know it does not meet the requirements for the 1% rule but I'm hoping that with the equity in the house due to the appraised value that I might be getting a decent deal. Any thoughts or advice would be greatly appreciated. thank you!

[Supersaver2013]

Taxes and insurance will be approximately $2000/yr

[SunshineGirl]

A higher appraisal done four years ago means nothing. You need a current appraisal. And an inspection, no matter how good a friend this is.

[arebelspy]

A higher appraisal done four years ago means nothing. You need a current appraisal. And an inspection, no matter how good a friend this is.

+1 to Sunshine Girl.

I know it does not meet the requirements for the 1% rule but I'm hoping that...

Yikes.  Just read this a few times.  I've heard this before.  It almost never ends well.

with the equity in the house due to the appraised value that I might be getting a decent deal.

Even if it is worth 137, and you bought for 120, that's a discount of.. about 13%.  The seller will save almost half that anyways from not using realtors.  That's not much built in equity that would turn this into a "deal."  I.e. if you turned around and sold it the day you bought it, you may break even, at best (probably would lose money to try and sell it quick).

Pass..

[Daleth]

Why's the rent so low for a nice house in a good neighborhood? How many bedrooms? Have you looked on Craigslist to see what houses that size are renting for in that area?

Also, the old appraisal is meaningless. Your bank will do a new one and will not loan you more than their stated percentage (on an investment property it's usually 75% or max 80%) of the appraised value. Is there an easy way for you to check recent sale prices of comparable houses? Even just looking at current asking prices on comparables can give you a ballpark idea. If the comparables are way lower than $120k and the Craigslist rents are way higher than $800, in other words if this is at or extremely close to the 1% rule, then it's worth considering. Otherwise you're just betting on fast appreciation, since that's the only other way you could make money off it.