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.
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$51,600
- $12,500 down payment. (25%)
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$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? :)