Author Topic: Rental Deal?  (Read 3312 times)

SwordGuy

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Rental Deal?
« on: September 13, 2014, 03:36:18 PM »
What do you think of this as a potential real estate deal?

Asking Price $50,000.   

Does not appear to have serious issues to repair before renting out.   For the moment, I'll assume that's the case to see whether it makes sense to investigate further.

Comparable rentals in the neighborhood run in the $750 to $800 range.  The property is attractive and the neighborhood looks well kept up.

Comparable sales in the same area run in the $75,000 to $90,000 range.
There is no reason to expect a lot of market appreciation beyond that.

So, comparable rents would be in the 1.5% to 1.6% of purchase price.

Property tax is currently $1415 and isn't expect to ratchet up anytime soon. Might make a case for lowering it.

My guestimate of $900 for insurance and 5% on the mortgage rate puts a 30 year PITI payment right at $400 a month.

Gross Receipts minus a 6% vacancy (a wag there) would be, at the $750 rental rate, $9000 - 540 for $8460.  Let's take away another $200 for utility payments I would have to make when there are no renters.   I can mow the yard (though I would sure as heck hate to do it!).
So, $8260 available in income.

Annual PITI would be $4800

Net income would be $3,460 a year.
Net equity would average $700 a year over the first 10 years.
I'm a bit iffy on depreciation.  Land value is appraised by the county at $16,000, so that leaves $34,000 to depreciate over 30 years, or $1,113 a year.

10 year return would be:

  $34,600  Net income.
  $  7,000 Equity.
  $10,000 Appreciation.  (Assumes price recovers to $60,000 instead of the 75-90,000 range.
  ======
  $51,600
- $12,500  down payment. (25%)
  ======
  $39,100  of which $11,130 would be sheltered by the depreciation.

$3,910 a year on a $12,500 investment would be a 31.28% rate of return.
That doesn't include depreciation but also doesn't include advertising, etc.

Does that make sense?    Any glaring things missing?

If I had to pump another $12,500 into the property to make repairs, it would still be around a 15% rate of return, wouldn't it?

Have I understood the rental math or do I need to be sent back for remedial instruction? :)







waltworks

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Re: Rental Deal?
« Reply #1 on: September 13, 2014, 04:44:57 PM »
I'd buy it, after doing usual due diligence.

-W

Another Reader

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Re: Rental Deal?
« Reply #2 on: September 13, 2014, 05:22:22 PM »
Why is this property priced at $50k when everything comparable has sold for $75-$90k?  If it's listed at a price that much lower and wasn't snapped up, there is likely something seriously wrong with the property.

SwordGuy

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Re: Rental Deal?
« Reply #3 on: September 13, 2014, 05:32:35 PM »
Why is this property priced at $50k when everything comparable has sold for $75-$90k?  If it's listed at a price that much lower and wasn't snapped up, there is likely something seriously wrong with the property.

That's definitely possible!  We did an outside drive-by of a number of properties today and this appeared to be the best of the bunch.   

If the numbers look workable then we can take the time to check it out more seriously.  First, an in person check and if that works out, we can hire an inspector to check it out, too.

The main road into the subdivision (a few blocks away) is under construction.  It's being widened but the construction is a nuisance (and will be for another 6 months).  The owners of the property are not the current residents.  The owners are (from what I can find out online via free public info) are a couple in their 50s.  They only own one other property (under their names) in the county.

The property was put up for sale back in Oct of last year.   It's still occupied by renters, which is why we didn't go up and take a closer look.

It could be the owners just need the money. :)
« Last Edit: September 13, 2014, 05:37:19 PM by SwordGuy »

SwordGuy

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Re: Rental Deal?
« Reply #4 on: September 13, 2014, 06:11:39 PM »
The house was purchased in Dec of 2000 for $78,000.  Interest rates at that time were 6%+.
Depending upon how much money they put down, they might be paying as much as $700 a month for PITI.  With rental rates in the $750-800 range they don't have much of a cash cushion for any up-coming repairs.


jnc

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Re: Rental Deal?
« Reply #5 on: September 15, 2014, 02:21:51 PM »
I have bought a few properties for around 56k and the rent is around 725/mo so I would say your numbers if accurate seem pretty good to me.

usmarine1975

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Re: Rental Deal?
« Reply #6 on: September 15, 2014, 02:38:50 PM »
We bought a rental last year for 55k and our rent is just a tad higher.  The reason it was available for so that price is the previous owner died and then his executor also passed away.  We had to get our offer through 2 different estates.  It also was a 2 bedroom which isn't the most desirable to purchase.  But is a perfect Rental.  I put a wood floor in the dining room.  The 3/4 wood flooring was pre finished and left over from a family friends house.  It's one of our Better purchases.

SwordGuy

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Re: Rental Deal?
« Reply #7 on: September 15, 2014, 07:34:04 PM »
Thanks everyone!

We've identified several other possible properties and will be looking at this one and other similar ones this week with a realtor.

We found one on Sunday that we really liked.  It was a HUD foreclosure.  Sadly, we got there too late.  It was awesome enough that we were seriously considering buying it and moving in, selling our old house, building the shop of our dreams, and still clearing $100,000 on the deal.   That would have been SWEET!.

I don't believe I'll EVER buy a house at retail again!