Learning, Sharing, and Teaching > Real Estate and Landlording

Should we buy this rental from MIL?

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Stachetastic:
My father in law passed away unexpectedly this spring, and MIL has listed their rental properties (2 duplexes and a SFR). The single family is the only one that has ever piqued our interest. It has been listed since June, with no bites. There have been a few showings, but the current tenants moved in right before she listed it, and have been very combative toward prospective buyers during showings. The house is located in a B-/C pocket of an otherwise B neighborhood. This particular street has its share of petty theft and some drug activity, but is safe. There may be one or two vacant properties within a few blocks. We would pursue owner financing, if MIL had interest in that. She is primarily looking to alleviate the headaches of rental properties now that FIL is gone. Here are the details:

2 story/2 Bedroom/1 Bath/2 car detached garage
Newer furnace, windows, and vinyl siding

Currently listed at 39k (valued at 29k on auditor's website, which is closer to what we'd offer)
Currently rents to Section 8 tenant for 650/mo. I'm unsure if any utilities are included.
Annual property tax is 400
Insurance would likely run ~1k

We own two other rentals within 6-8 blocks of this property. We have never mentioned to MIL we may be interested, but she has said this one is not in good shape. Possibly because FIL leaned heavily toward the "slum lord" end of the spectrum. It likely could use new flooring/paint and definitely some spruced up landscaping. Even in great condition, max rent would likely be around 700. We've been interested in adding to our rental portfolio for awhile now, but haven't found any great deals. This one is a little outside our target neighborhood, but not by much. And it's only a 2BR, which concerns me in regards to vacancy (esp since both bedrooms are on the second floor). 

patchyfacialhair:
650 rent

83 insurance
33 taxes
65 ongoing maintenance? (2% of value)
54 vacancy (assuming 1 month vacant per year average)
100 management

Leaving 315 for financing, just to break even? seems a bit rough. Even getting 700 for rent and self management really stretches it for you. In a place like this, I wouldn't depend on appreciation either. You'd want to be cashflowing from the start and a place like this, where you're already looking at having to put money into the property would only make solid sense if you were likely to get closer to 800 or more.

K-ice:
Where can you buy a 2 bdm home for $40K?

Many people easily spend more than that on clown cars.

Since you know the area &  already have landlord experience I’d strongly consider it.

I’d still check for major issues like foundation & roof but otherwise cosmetic upgrades can be done over time.

What are the current tenants like? You will be inheriting them & depending on local rules could be stuck with them until they want to leave. Who pays utilities?

My uncle had a rule of thumb. Take the annual income, $7,800, add a zero $78,000, don’t pay more than that per door. This comes in at under 1/2 that so it’s a great deal by his rule.

Unless there are some crazy HOA fees or something missing it is less risky than deals I’ve done.

tralfamadorian:
Section 8 tenants are usually tougher on properties than the general tenant pool. I would be concerned about profit being eaten up by repairs and maintenance costs but since you have quite a few properties in the area, you know the going rate and how much you'll need to set aside.

Regarding 2 bed vs 3- what's the tenant pool for the neighborhood? Families? Single people/DINKS just starting out?

waltworks:
At $650 a month, overhead is the determining factor. A $40k house isn't that much cheaper to maintain than a $400k house, so I'd assume maintenance/capex of something like $2-3k/year. Call it $250/mo. Add $110 for insurance and maybe another $50 for vacancy...

I dunno. If I had a dozen others and a manager in place already, sure. I wouldn't self manage that place for the tiny amount of money you'd make.

-W

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