Author Topic: Is this enough rent for a $550k property (vs selling)?  (Read 2687 times)

Marvel2017

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Is this enough rent for a $550k property (vs selling)?
« on: September 09, 2016, 12:09:56 PM »
The whole property is worth about $550k. Two separate rental spaces on the property, one I can get $2,800/mo rent and the second (detached) I can get $1,500/mo. ($4,300 total)

Property tax/Insurance is $415/mo
No mortgage
Property management approx. $250/mo

Thanks!

bpleshek

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Re: Is this enough rent for a $550k property (vs selling)?
« Reply #1 on: September 09, 2016, 12:47:27 PM »
So your net income is 3635 per month.  For the year that's $39985.  I figure 11 months for 1/12 vacancy.  If you count another 10% for annual expenses that's $35986.  The value of the property is 550k, so your cap rate is NOI/Value or 6.543%  It seems a bit low to me.  Personally, I try to get 1% gross rent per month, so in this case it would be ~$5500/month.

I don't know your market, so I can't say for sure if this is a good value in your area.  I just like mine to be higher.  But on the other hand, without a mortgage, your risk is low if it goes unrented for a period of time.  Your downsides seem to be opportunity cost and potential depreciation of the asset.

I've seen worse deals.  It'll take 15.3 years to recoup your investment.

Brian
« Last Edit: September 09, 2016, 12:52:52 PM by bpleshek »

Marvel2017

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Re: Is this enough rent for a $550k property (vs selling)?
« Reply #2 on: September 09, 2016, 03:01:21 PM »
Thanks!

clarkfan1979

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Re: Is this enough rent for a $550k property (vs selling)?
« Reply #3 on: September 09, 2016, 11:11:59 PM »
What about getting a rental mortgage at 4% for 30 years. I think a 15 year might be at 3.5%.

Most people will recommend to sell. However, what is the alternative? Are you really comfortable with the property. It could be easy money.

Unstoppable

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Re: Is this enough rent for a $550k property (vs selling)?
« Reply #4 on: September 21, 2016, 09:18:49 AM »
By the book it is underperforming (for my market / age / goals). If you are in an expensive market, this could be a phenomenal deal. It really depends on your market, your goals and your comfort level.

If you inherited this, management is in place and trustworthy, and you wouldn't be buying another property if you sold it, the answer might be a little different than a RE investor comparing deals or options.

Cwadda

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Re: Is this enough rent for a $550k property (vs selling)?
« Reply #5 on: September 21, 2016, 10:50:10 AM »
So your net income is 3635 per month.  For the year that's $39985.  I figure 11 months for 1/12 vacancy.  If you count another 10% for annual expenses that's $35986.  The value of the property is 550k, so your cap rate is NOI/Value or 6.543%  It seems a bit low to me.  Personally, I try to get 1% gross rent per month, so in this case it would be ~$5500/month.

I don't know your market, so I can't say for sure if this is a good value in your area.  I just like mine to be higher.  But on the other hand, without a mortgage, your risk is low if it goes unrented for a period of time.  Your downsides seem to be opportunity cost and potential depreciation of the asset.

I've seen worse deals.  It'll take 15.3 years to recoup your investment.

Brian

This is a really good analysis and I agree.

TheDeclutterer

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Re: Is this enough rent for a $550k property (vs selling)?
« Reply #6 on: December 03, 2016, 10:02:28 AM »
From a strict numbers perspective on a buy criteria seems a little low. Is there upside potential?

I have not been on this forum for a while and cruising thru the real estate threads and the 550K caught my eye. For reference I have a 610K cost doing 150K annually. Not far off off your in cost. They are out there. Think outside the box and outside the comfort zone. I found that 1 15 min from my current residence. Even better.

I read thread after thread of people tying up 100s of thousands of dollars for break even or nearly break even and I personally do not get it. While long term appreciation and mortgage payoff is great if you have one (and you should if part of a corporation) I am looking for positive cash flow on properties. Money. Making it. Monthly. On the 1st. The more the better!


jinga nation

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Re: Is this enough rent for a $550k property (vs selling)?
« Reply #7 on: December 07, 2016, 11:09:30 AM »
Here's a good resource I use to calculate ROI and get a yay/nay on the money flow:
http://www.goodmortgage.com/Calculators/Investment_Property.html