First Property

[Thorney Gibson]

Hello all. Im looking into buying my first property soon. I found one that im going to look at tomorrow.It is selling for 140k. It already has tenants in it renting it out at 1260.00 a month. Does this sound like a good deal? With me putting 5% down on this property and with taxes and monthly HOA fees it would only cost me 920.00 a month it looks like for the total mortgage.

[Kevin C.]

2% rule would be pretty tough to accomplish with 140K homes, 50% rule would be the better target.

P&I on 140K @ 5.5% fixed for 30 years comes out to 794.90.

Assuming $1,260 rent.
$1,260 / 2 = $630.
Take $630 for expenses, that leaves $630.
P&I is $794.90, so you're short $164.90 of breaking even!

50% rule says subtract 50% of the rent for expenses, what is left goes towards P&I and profit. Assuming 100% financing, you'd need to get almost $1,800 a month in order to clear on average $100 per month with this one.

With a lot of cash down you can make it cash flow, but that doesn't change the 'deal'.

2% rule would say you need to get $2,800 a month in rent - that's going to be tough.

2% rule is for lower end properties, 50% rule would be a better target for properties in this price range.