42k and rents at 850 a month??? ...am I missing something here?

The price is 42,500. So, even if you bought it at the asking price without trying to barter, and put 10% down, a 15-yr mortgage on the remaining 38,250 at 8% (a bad rate as I understand; I am purposefully trying to assess this as a 'worst case scenario' to make sure it is profitable even if the loan doesn't come out as well as planned)

That means payments are 365.54/month + 149.42 taxes + I have no idea how much for insurance. According to that ad, which of course may not be reliable, the house rents for 850 and is in move-in condition.

850 - 365.54 - 149.42 = 335.04/month profit (minus whatever other expenses I may be missing here.)

If you go back and change that mortgage to a 30yr, at 7%, your monthly payment drops to 254.48, so your profit rises to 446.10/month (again, minus whatever additional expenses I am missing).

Not a ton of cash but not a ton of work either, and presumably the value of the property increases with time and you build up equity in it without ever paying the mortgage yourself.

So why is this such a deal and why hasn't someone grabbed it already? Am I missing something? I was originally considering trying to buy a house (for myself, to live in, not an investment) this fall but now that I am seeing such cheap rentable homes in areas like buffalo, I am thinking about staying in my current apartment for another year or two and picking up as much property as I can be approved for loans to purchase. Am I diving into shallow water?

Edited: 06/26/2010 at 07:40AM

Account Closed

21 posts
50 influence

Mar 22 '09, 11:33 PM

There's a big difference between scheduled rent and actual rent received. Difficult areas always have higher rents v. property value, because collecting the rent is part of what makes difficult areas difficult.

It's no fun to invest in areas where you need a 7 iron to collect rent. Much easier to reduce your expectations and have them mail it to you (pick a better area with better clients).

Edited: 06/26/2010 at 07:40AM

Corey Demuth

Real Estate Investor · Queens, New York

356 posts
2 awards
50 influence

Mar 23 '09, 12:06 AM

are you saying the area this home is located in is a "difficult area" ? Also couldn't this be avoided by careful screening of potential rentors, and a good lease agreement? If they don't pay I can throw them out (eventually), right?

Edited: 06/26/2010 at 07:40AM

Eric L.

SFR Investor · Omaha, Nebraska

31 posts
1 award
50 influence

Mar 23 '09, 12:09 AM

Make sure it is not in a war zone. In this market there are a lot of opportunities like that. I missed out on a triplex in a good neighborhood this week that brought in $1300/month and the asking price as $25k. You're not always missing something. There are a lot of investors out there, but there a lot more deals than investors right now.

Edited: 06/26/2010 at 07:40AM

Corey Demuth

Real Estate Investor · Queens, New York

356 posts
2 awards
50 influence

Mar 23 '09, 12:12 AM

haha define warzone

Edited: 06/26/2010 at 07:40AM

Nick J.

SFR Investor · Scottsdale, Arizona

3,008 posts
21 awards
66 influence

Mar 23 '09, 12:20 AM

Corey, I'm by no means a buy/hold expert like Jon or MikeO are. However that looks like a really nice house!!

I'm sure Jon and or MikeO will come on here and give their .02 but if I had any interest in NY I would take a good look at that property, granted that is you can/could get financing for it

and to re-touch on your real question as far as why no has touched it, I'm curious as well how many deals are actually done here on BP like that. I would like to start throwing up some of my own deals to attract any possible buyers but it just doesn't seem like there is any money trading hands here, of course I can and probably am further from the truth

Edited: 06/26/2010 at 07:40AM

Corey Demuth

Real Estate Investor · Queens, New York

356 posts
2 awards
50 influence

Mar 23 '09, 12:36 AM

Well, I qualify for close to 200k for a mortgage so I am assuming that I could get 40k for an investment property without any issues. (Or, hopefully, 2 or 3 small mortgages around 40-50k each.) I make 50k on the books and I pay my bills, I'm just a little young so I don't have say, 10-15 years of credit history.

My first response in looking at this house was to think, if it is such a great deal why is she selling it rather than renting it out herself?

Edited: 06/26/2010 at 07:40AM

Nick J.

SFR Investor · Scottsdale, Arizona

3,008 posts
21 awards
66 influence

Mar 23 '09, 12:41 AM

I believe her contact info is on her profile, I would ask her that question.

at least check into it, it would be nice to see a deal posted in the success topic regarding properties listed right here on BP

Edited: 06/26/2010 at 07:40AM

Ryan Stirling

Real Estate Investor · Pennsylvania

32 posts
1 award
50 influence

Mar 23 '09, 01:05 AM

I'm new at this as well, but this deal isn't as great as it seems. You have included any expenses at all in your analysis. Insurance, Property management (unless you do it yourself), vacancy rate, repairs & maintenance - just to name a few.

Look into the 50%/2% rule on this website. A lot of the buy and hold investors push this rule and the more I learn about it, the more it's a great estimation of expenses especially for analysis of a deal.

Edited: 06/26/2010 at 07:40AM

Diane Menke

Contractor · Philadelphia, Pennsylvania

184 posts
50 influence

Mar 23 '09, 01:19 AM

Corey I agree its worth talking to the seller about that prop.

I don't know anything about the particulars of that prop. The guys have laid out a lot of potential issues for you.

Another issue to consider is that just because a property cash flows, you might still like to sell it. I have 3 like this now. I want to move onto bigger things by cashing out/selling them. Could be your seller is considering a sale simply to cash out.

Seems to me a great biz plan is to create cash flowing properties to sell to wanna be investors. Thoughts?

I am also struck by the ratio of chatter to actual buying/selling/renting that people do on this site. Seems like a lot of looking and talking but not so much action?

Maybe time to get into the game Corey.

Diane Menke

Edited: 06/26/2010 at 07:40AM

Corey Demuth

Real Estate Investor · Queens, New York

356 posts
2 awards
50 influence

Mar 23 '09, 01:25 AM

Originally posted by Ryan Stirling

I'm new at this as well, but this deal isn't as great as it seems. You have included any expenses at all in your analysis. Insurance, Property management (unless you do it yourself), vacancy rate, repairs & maintenance - just to name a few.

Look into the 50%/2% rule on this website. A lot of the buy and hold investors push this rule and the more I learn about it, the more it's a great estimation of expenses especially for analysis of a deal.

can you please explain the 50 2 rule?

Edited: 06/26/2010 at 07:40AM

Michael Rossi

Real Estate Investor · Ohio

4,587 posts
14 awards
56 influence

Mar 23 '09, 01:30 AM

Corey,

This looks like a good deal! You need to read one of the sticky threads on the 50% Rule (in the General or Landlording forums).

At any rate, here is how I see this deal:

Gross rents: $850
Operating Expenses: $425
NOI: $425

Mortgage (30 yr, $42,500, 7% NOO): $282

Cash flow: $143 per month which is GREAT!

Now, you just need to do your due diligence. Go look at a BUNCH of properties in the area!

Good Luck,

Mike

Edited: 06/26/2010 at 07:40AM

Nick J.

SFR Investor · Scottsdale, Arizona

3,008 posts
21 awards
66 influence

Mar 23 '09, 01:32 AM

Originally posted by Corey Demuth

Originally posted by Ryan Stirling
I'm new at this as well, but this deal isn't as great as it seems. You have included any expenses at all in your analysis. Insurance, Property management (unless you do it yourself), vacancy rate, repairs & maintenance - just to name a few.

Look into the 50%/2% rule on this website. A lot of the buy and hold investors push this rule and the more I learn about it, the more it's a great estimation of expenses especially for analysis of a deal.

can you please explain the 50 2 rule?

MikeOH beat me to the punch..............it must the Carb diet is making him quick

Edited: 06/26/2010 at 07:40AM by Nick J.

Account Closed

21 posts
50 influence

Mar 23 '09, 02:14 AM

Huh? What kind of house has a 50% operating expense expectancy?

Edited: 06/26/2010 at 07:40AM

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

Moderator Pro

12,317 posts
15 awards
95 influence

Mar 23 '09, 02:41 AM

Read the sticky thread in the Rental Property forum. Lots of discussion on the "50% rule" there.

Edited: 06/26/2010 at 07:40AM

Jon Holdman, Flying Phoenix LLC

Harrison Painter

· Indianapolis, Indiana

762 posts
10 awards
50 influence

Mar 23 '09, 03:26 AM

Rochester has been a very hot market for cash flow investors, I know, because it is one of my biggest competitors! LOL

I have a few clients with property there, and they have had success. While the city does not seem to offer a lot for growth, like a city named Indianapolis (I know, shameless plug!), it is an area that has been very solid!

Make sure you have a very good property manager, as that is the real make or break with any out of state investment.

On paper, this looks like a solid deal!

My advice is to contact the person selling it and start asking questions!

Have a Profitable Day!

Edited: 06/26/2010 at 07:40AM

Corey Demuth

Real Estate Investor · Queens, New York

356 posts
2 awards
50 influence

Mar 23 '09, 03:35 AM

Yes my next issue is that it's a good 5 hours away from me (I live in NYC), is that going to be a huge problem? I was hoping to start out with something closer to home but this seems like a great deal and nothing around here seems very feasible to me for my price range (must be sub 200k).

Edited: 06/26/2010 at 07:40AM

Nick J.

SFR Investor · Scottsdale, Arizona

3,008 posts
21 awards
66 influence

Mar 23 '09, 03:42 AM

Corey, have you called the seller yet?

no point in chit chatting about it if you haven't at least spoken to the seller yet.

give her a call and let us know what transpires, I'd be interested to watch this unfold if it works out for ya.

Edited: 06/26/2010 at 07:40AM

Jim Doine

Real Estate Investor · Myrtle creek , Oregon

Donor

343 posts
2 awards
50 influence

Mar 23 '09, 05:51 AM

Corey, definition-War Zone- A very high crime area. A lot of drug activity, gangs, prostitutes, drive by shootings,murders, daily gunfire, etc. etc.Another forum member had a 50% rule that applied to war zones.Enter at your own risk, you have a 50% chance to come out alive. Jim

Edited: 06/26/2010 at 07:40AM

Kevin M

Real Estate Investor · New York

21 posts
50 influence

Mar 23 '09, 07:51 AM

Cory,if you tell me what area in buffalo i can give you some info as im very familiar with it.I dont invest there as most areas are not good anymore but there are some pockets that are ok.I tend to stay around the outskirts but not in the city

Edited: 06/26/2010 at 07:40AM

← Previous 1 2 Next →