Author Topic: Would love feedback on a potential income property  (Read 800 times)


  • 5 O'Clock Shadow
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  • Posts: 17
Would love feedback on a potential income property
« on: August 10, 2016, 09:30:15 PM »
So I have been evaluating the market of rental houses in my area and I would love to get feedback from people who have more experience as landlords. I have been attempting to determine if my area would be a profitable area to do this or if investing in the stock market would be a better return.  I would be able to put down 20% as well as have a cash reserve for 6 months. The numbers would be as follows:

Cost of double: 180k-210k
Rent: $900 per unit (Area is currently going for $950-1000 however I would like to be conservative in case the market decreases)
Taxes: $2200 per year (Includes garbage)
Insurance: $1500 per year
Water: $720 per year
Maintenance: 4000 per year (Old houses that I would prefer to be conservative on the budget rather than underestimate) 
Vacancy would be less than a month a year.

I do not want to include appreciation and would like to assume the house will not appreciate at all.

I have researched different techniques for determining if a rental property is profitable and have come up with different results. I would greatly appreciate any feedback and if you need additional numbers please let me know.


  • 5 O'Clock Shadow
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  • Posts: 86
Re: Would love feedback on a potential income property
« Reply #1 on: August 11, 2016, 08:13:33 AM »
You may have heard of the 1% or 2% rule. People who follow this rule say you should at least get 1-2% of your purchase price per month on a rental property. Some people will only invest if they can get 2% or more, others 1% or more. If you're buying with a mortgage, add closing costs to the purchase price.

Based on the data you've given, your best case scenario is you buy a property for 180k and get 950 in rent:

Both units: $1900
1900 is 1% of 190k.

In this case it seems like you'd be OK. However, do the math with adding closing costs as well. Also, insurance at $1500 a year seems high to me, but that could just be area dependent. I have a 2 unit built in 1896 and insurance is just over $800 a year.

Another "rule" of thumb to consider is the 50% monthly rule. This states that you should plan on having 50% of rent revenue go to the mortgage, taxes, insurance, vacancy and all expenses. If you add them up, and all expenses end up being more than 50% of monthly rent, then you've "broken" this rule.

Based on your info given:

Monthly Expenses:
Mortgage (at 4.5% w/ 20% down): 730
Taxes:                        183
Insurance:                 125
Water:                        60
Maintenance:             333

Total monthly expenses: 1431
Monthly revenue:            1900


Expenses are 75% of revenue!

Here you can see you've broken the 50% rule by quite a bit. And this is kind of a best case scenario as well. ALSO, this doesn't take into account vacancy.

PROS: Seem to get high rents in your area.
CONS: Purchase price is also high.

I don't know what area you're in, but if there was a property like this in my area, I would not go through with it. Mainly because in my area (Grand Rapids, MI) you can find 2-units for ~100k that rent out for $750 p/ unit or more. But you're area is probably different.

Hope this helps! I'm sure if I missed some things others will chime in with answers.


  • Pencil Stache
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Re: Would love feedback on a potential income property
« Reply #2 on: August 12, 2016, 11:25:01 AM »
I'm not an expert but you also need to account for vacancy and ideally management. OP says less than 1 month/year but you will still have some. You might also have lawn care and such for a multi-family property.


10% vacancy (36 days/year): 190/mo, new cash flow is: 279/mo
5% vacancy (18 days/year): 95/mo, new cash flow is: 374

If you also account for management costs (either to outsource or compensation for your time) of 10%, you are down to only:

10% vacancy+10% management, cash flow: 89/mo
5% vacancy+10% management,  cash flow: 184/mo

To improve the situation:
- Pay less for the house. Decide what your max price is based on the numbers and if they don't take it, you move on.
- Don't pay for water, I assume you included it because they are not separately metered? But maybe there is a way to pass this along to the tenant (ie rent is 950 + 50/mo water)

Those were my ideas....there are many very experienced landlords on MMM! Hopefully one will chime in :-) If you also look at the past case studies, you can see what they recommended others to look out for, check out the sticky from Iamlindoro for sure.
Get cash back on your online shopping from Mr Rebates (hotels, flights, ebay, groupon and more): (referral link, thank you!)


  • 5 O'Clock Shadow
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  • Posts: 17
Re: Would love feedback on a potential income property
« Reply #3 on: August 15, 2016, 08:16:42 AM »
Thank you guys for the feedback. I was familiar with the 1 and 2 percent rules as well as the 50 percent rule. I think i just needed to hear it from somone else. I will wait for the market in my area to go down or I will find a different market. Thank you both for taking the time to respond.


  • Walrus Stache
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  • Posts: 5224
  • Location: Sydney, Oz
Re: Would love feedback on a potential income property
« Reply #4 on: August 15, 2016, 03:06:56 PM »
Would encourage you not to suffer from analysis paralysis.

There are ways you can cheaply add value and thus increase your potential rent (new paint, carpet, gardens etc).