Here's the deal. This area of town floods almost every year and each year people try to bail on their houses in the area. The property is pretty nice. Something that would only need some cosmetic updates if it were in another area of town. That being said, it's listed for about 1/3 of what it'd sell for in other areas and needs a new furnace asap.
- 2 Unit with 2 bedrooms in each
- Very desirable school district
- 2 stall garage
- Large yard
Let's say I purchase it at $20k and I get $600/unit which is a fair estimate for the area.
Gross Monthly Rent | $1200 |
Assumed Monthly Vacancy Expense | $-50 | (One month vacancy for one unit) |
Monthly Tax Expense | $-300 |
Monthly Insurance Expense | $-168 | (Assumed $68 home ins, $100/month flood) |
Monthly Utilities Expense | $-160 |
Monthly Maintenance Expense | $-100 | (probably higher with flooding) |
|
|
Gross Monthly Expense | $-728 |
Gross Monthly Income | $1150 |
Debt Service | $0 | (Assuming cash purchase) |
|
|
Cash Flow | $422 |
Cash Flow % | 1.88% /Month | 22.51% /Year |
I don't claim to be a pro with numbers so feel free to correct my formulas if the math doesn't look right.
Does something like this appeal to you more experienced investors? It seems like it'd be a bit of a headache to file claims each year and deal with higher turnover rates due to flooding affecting tenants.
Do you guys automatically look away from deals like this despite the low risk of investment and 22% return rate? If so, why?