100% New to REI, trying to learn math...

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100% New to REI, trying to learn math...

Rael Mussell
Real Estate Investor · Canton, MI · Member since 2009 · 18 posts · 3 votes

Ok, so I am 100% new to this game, but have everything lined up to get into the game (So I think.)

I've picked two successful REI's brains for hours on end and have a lot of good advice on incorporation, insurance amount to carry, rent loss insurance, et al..

So lets just get to it:

I have found a SFH listed for 23,300. It was a previous rental and I would rent it again.

www.ziply.com and craigslist shows comparables in rent of 1500.00-1600.00/mo

The neighboorhood is 44% rental community. I actually work about 1 minute from the property and the area is NICE. It has crime, but I would walk the streets at night feeling safe.

So, using some math I found here:

GR-OE=NOI

QUESTION1: What encompases OE? (Tax/Insurance/Maint?)

So, let's lowball it all --

1500-1500(.5)=750

NOI = DS + CF
NOI-DS=CF

Mortgage = 23,300 @ 7%, 30yr = 153.02
Taxes (NON-HOMESTEAD) = 4700 (Guesstimate based off other comparables and citysearch.com data) = 393/mo
Insurance = 100.00/mo (Guess)

750-153.02 = 596.98

???

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y

There are several sticky threads in the Rental Property Forum that deal with expenses. Lots more than what you list. But, it appears you understand the basic math.

You should assume that property will need some work to get it to a rentable state.

If you can buy a property for $24K that needs no work and rents for $1500, I'd be truly astounded. The cheapest thing I see in Canton MI on realtor.com is $49K. Just guessing, your example probably needs a lot of work. Looks like all the listings under $80K for Canton are REOs, so I'm SURE they all need work. Nevertheless, check it out. You may have found a screaming deal.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    There are several sticky threads in the Rental Property Forum that deal with expenses. Lots more than what you list. But, it appears you understand the basic math.

    You should assume that property will need some work to get it to a rentable state.

    If you can buy a property for $24K that needs no work and rents for $1500, I'd be truly astounded. The cheapest thing I see in Canton MI on realtor.com is $49K. Just guessing, your example probably needs a lot of work. Looks like all the listings under $80K for Canton are REOs, so I'm SURE they all need work. Nevertheless, check it out. You may have found a screaming deal.

    2Reply
  • Rael Mussell
    OP
    Real Estate Investor · Canton, MI · Member since 2009 · 18 posts · 3 votes
    17y

    I'm not investing in Canton, but the Great Metro area overall. Anything within an hour drive.

    What is the Acronym REO stand for? I know what REI is?

    I suspect that this unit would require work, I haven't even walked through it yet, so no idea.

    I'll look for that other documentation! Thanks!

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    17y

    REO = Real Estate, Owned. A bank owned property they've taken back during a foreclosure. Lots of places you can buy in Detroit for $1000 or even less. Many I think are overpriced. Be careful. You have very high taxes there and a dwindling population.

    0Reply
  • Scott M.
    Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
    17y

    I would be careful on your taxes and on your rental income projections. I am not sure what city in Michigan your looking at for $1,500 a month rent but any city that can bring in $1,500 in rent would not be selling for $24K and not require a ton of work - unless you have found the amazing deal of the year - so Jon is right on with that one.

    Taxes - do not use comparables - call the city and find out what the real taxes are as it can vary a ton from home to home.

    Jon is right you need to be careful - but that is not limited to Detroit - you need to buy the right house everywhere.

    0Reply
  • Kenneth LaVoie
    Rental Property Investor · Winslow, ME · Member since 2008 · 826 posts · 281 votes
    17y

    I have a spreadsheet you might find interesting - it's a 10 year rental analyzer that inc. expenses, etc. -- I use it with painstaking detail THEN run it agains the "50%" rule, etc. to make sure I'm on. The more exact numbers I can find the better -- typical property disclosure should list the taxes, fuel use, etc. -- prop. taxes can vary widely - and if the person had a homestead exemption, then the taxes wil jump when you take ownership. I've seen property taxes on a 90k home anywhere from 677 to 1,677 per year, so watch out -- in my small rural maine area, often times the assessor will "overlook" raising the taxes on an upstanding member of the town, for instance. My spreadsheet is at www.kenlavoie.com/10-year-rental-analyzer.XLS

    0Reply
  • G Simpson
    Real Estate Investor · Vancouver, British Columbia · Member since 2009 · 44 posts · 11 votes
    17y

    Rae,

    I think you need to recheck your rental projection number..seems way too high.

    0Reply
  • Account Closed
    Real Estate Investor · Chicago, IL · Member since 2009 · 178 posts · 62 votes
    17y

    Kenneth that is an excellent spreadsheet. Thanks for posting it.

    0Reply
  • Thomas Loughran
    General Contractor · Meridian, ID · Member since 2009 · 52 posts · 3 votes
    17y

    Thanks,Kenneth for the spreadsheet.
    Thomas

    0Reply
  • Rael Mussell
    OP
    Real Estate Investor · Canton, MI · Member since 2009 · 18 posts · 3 votes
    17y

    Thanks for the spreadsheet! That's fantastic!

    0Reply
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