Author Topic: How do these numbers look? Rental property  (Read 2028 times)

Megma

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How do these numbers look? Rental property
« on: August 28, 2015, 08:08:18 AM »
I've been looking at buying my first rental for probably ~1 year, reading and learning a lot from you all! Tell me what you think about this property, it is having an open house tomorrow and I plan to take a look in person.

LP: 53k (Zillow estimate is 63k for what it's worth)
Target price: 45k, max price is 50k then I will definitely walk away. It looks like they have been trying to sell it since 2014 with various price changes and re-listings.
rehab budget: 5-8k (overall it looks decent and is liveable but the kitchen could use some minor refreshing)
2 bed/1 bath SFH, 1,104 SQFT (older home, outside looks cute with some older home charm, little porch etc)
built 1947
target rent price: 650-700/mo (area rent median on rentometer is 600; nearest craigslist postings are 700-900/mo for 2 bedrooms, zillow estimate is over 900, which I feel is way too high)
Insurance: 600/yr (based on what I pay for my house, which is slightly larger/nicer)
taxes: 920/yr
maintenance & management (self-manage): 200/mo

I also attached the analysis I ran on Good Mortgage, based on what I feel are pretty conservative numbers (higher final price & lower rent) but maybe I am wrong? Tell me! It doesn't account for vacancy, so the "cash flow" would be lower with a 10% vacancy. The cash flow would not be amazing but for a relatively small investment, I should net 100+/month and the property price is low enough I feel that I could pay it off entirely in a few years.

I would estimate this is a B- or C+ neighborhood, it's nearish to a smaller state university. Trulia has it as a "lowest" crime rate area but the homes are older. I will know more when I look around tomorrow. Rents are also lower on average than elsewhere in our area; where some one bedrooms can rent for 800/mo but the prices and taxes are also much, much higher in those areas.

I have enough liquid assets for a 20% down payment and rehab, with some buffer for emergencies. Another consideration is if I can get a loan for such a small amount but I figure I will cross that bridge when I come to it.

Here is your cue to tell me this is a horrible idea Waltworks :-)

ShoulderThingThatGoesUp

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Re: How do these numbers look? Rental property
« Reply #1 on: August 28, 2015, 08:47:17 AM »
Target price: 45k, max price is 50k then I will definitely walk away. It looks like they have been trying to sell it since 2014 with various price changes and re-listings.
built 1947

Something is keeping this from selling, and you need to know what it is before you buy it.

Megma

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Re: How do these numbers look? Rental property
« Reply #2 on: August 28, 2015, 09:05:36 AM »
I will definitely, definitely, definitely get an inspection! Thank you for your cautionary words. Either way if it is not selling it is because they are priced to high for what they are offering, maybe I should target an even lower price. I will need to adjust this as I talk to my agent about the area and see it.

I think that they tried to list it once (for too much) and then took it off the market to do some work on it because when it came back on the market a few months later the price was 3k higher. I will learn more when I see it in person also, possibly the photos make it look better than it is.

tallen

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Re: How do these numbers look? Rental property
« Reply #3 on: August 28, 2015, 09:30:56 AM »
Unless I missed something those numbers don't work out to give you much cash flow, are you hoping for appreciation? I'd keep looking or send them a lowball offer, you can definitely do better.
« Last Edit: August 28, 2015, 09:34:25 AM by tallen »

Bearded Man

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Re: How do these numbers look? Rental property
« Reply #4 on: August 28, 2015, 10:59:30 AM »
I estimate after expenses you'd net 8% on your money put in, including closing costs. Not bad, but that's all I think you will get, no appreciation based on the low housing prices, and not much of a depreciation benefit. I estimated your expenses based on very low taxes and insurance as is often the case on such cheap houses because there is little economy in the area. In return, you get to do a lot of work and take on a lot of risk, bad tenants, law suits, etc. For that little money, I'd rather put my money in an index fund.

If you were getting appreciation and depreciation benefits, I'd say, that might change things, but you're not going to with this house.

Megma

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Re: How do these numbers look? Rental property
« Reply #5 on: August 31, 2015, 06:59:42 AM »
Thanks for the comments everyone, I looked at the place on Saturday and based on your feedback and the condition of the house decided it is not right for me. At the low end of the rent range, it's not profitable enough (as you all said :)) and to get it to the top of the range for the area it would need too much work (new kitchen, gutted bathroom, wall removed to expand a bedroom etc).

I will keep looking!