What numbers do you need when looking at buying a house?

I am new to this and wanting to buy my first rental house, there is a foreclosed house close to me that is in a great location within walking distance to most places, similar houses rent for 750-800 a month the house i looked at is 60,000 i looked at the last time this house sold which was in 2006 for 131,300 its a 3bd 1 ba with a .35 acre lot (which is big for being right in town) i figured that i wont need to put more then 15,000 into it, So does this sound like a good deal? What other numbers do i need to look at? What type of offer would you put in on it? thanks

Edited: 06/26/2010 at 08:09AM

Amy L.

Real Estate Investor · Boston, Massachusetts

114 posts
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Icon_minipost May 07 '09, 01:23 AM

As a rental, you'll need to know the comparable rents, repairs needed, general expenses, maintenance costs, taxes, insurance, etc.

Do a search on the site for the 50% rule and you'll find a bunch of discussions that should prepare you better then I will from this brief post.

Edited: 06/26/2010 at 08:09AM

Mike C

Real Estate Investor · Ohio

221 posts
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Icon_minipost May 07 '09, 08:12 AM

Chris,

Don't over complicate things. You really only need to know 3 or 4 things. 1. What can you get it for? 2. What is it worth TODAY? 3. What are the repairs? 3. What can I really rent it for? Can you get financed or will the bank finance it to get it off the books?

Do your research and then you can answer whether it is a good deal or not. A sales figure of 2006 is worthless. You have to talk to find out what the bank is willing to sell it for. They may or may not be willing to deal depending on how long they have had it. To figure out the rents, check the paper for that area, talk to 3 realtors, a property management company, etc. You have to ask more than one to make sure the one you asked isn't smoking crack and giving you bad numbers.

To find the value, also check with realtors, drive the neighborhood; check the paper for similar homes, etc. Again, you want more than one opinion of value as one or more of those you ask may be delusional.

To find the repairs, walk through with a good contractor, if the other numbers warrant going this far, assuming you are not a contractor and can do the estimated repairs yourself. These are most of the things you need before truly deciding if it is a good deal.

Until you know these numbers, you don't know if you have a good deal. When in doubt, be conservative in your estimates. After you answer these questions, you can use the 50% rule previously mentioned and well discussed to objectively look at the numbers and decide if you should move forward.

Good luck

Mike C

Edited: 06/26/2010 at 08:10AM

Will Barnard

Rehabber · Santa Clarita, California

7238 posts
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Icon_minipost May 07 '09, 01:44 PM

If you were to use the 50% rule on tis deal, assuming the $800 in rents, that means that your operating expenses will be $400 per month and therefore your NOI (net operating income) will be $400 monthly. Since you should want at least $100 cash flow per month, that only leaves you $300 monthly for the debt financing.
At 7%, $300 monthly only allows for a max purchase price of approx. $50,000 and that includes any repairs + acquisition cost.

So the answer to your question of $60k purchase + $15k repairs = NO, bad deal.

$35k purchase + $15k repairs = YES, good deal.

Edited: 06/26/2010 at 08:10AM

Will Barnard, Barnard Enterprises, Inc.
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