Today's market profit??

Question

In today's market in my area, i can find some sub-$300k houses, with mortgage payment about $1,000-1,100   (after 25% down payment) would profit around $350-500. but my down payment would be from a Heloc, so after interest on Heloc, would be a profit of $100-200.  does this sound right? does this range sound right?

Trent Reeve · Answer

yes, i  can rent or sell to anyone. I say unofficial as its likely aimed at people downsizing (hence just 2 bed/2 ba and landscaping included) but no official designation or requirements. stable area, near University. regular/larger home values easily go $350k+ starting out. being just outside Atlanta, near all normal needs (hospitals, stores, restaurants, etc). honestly, rents could easily go near $2k. talking with agent, estimating rent probably a little lower, but better to be pessimistic and get more than optimistic and take losses in my opinion. as for value add, some other 2/2 houses in area Zillow estimate $260 right now, and they dont have that loft. I dont necessarily needs this house, but more trying to gauge what margins I should look for vs what is out there right now.

Trent Reeve · Answer

the numbers do take into account taxes and insurance, but only those. and that is the market rate for the rent. Heloc structured at 10 yrs draw at only interest, 20 yrs pay back, at prime + .125

Tim Johnson · Answer

Hey Trent, not quite enough info for this forum to be of much help.

Does the mortgage payment include taxes and insurance?

Do your numbers take capex, maintenance, vacancy, management, etc. into account?

What is the market rate for rent?

How is your HELOC structured?

This could be a good and reasonable situation - just a bit hard for us to tell or offer helpful thoughts.....

Tim Johnson · Answer

Trent, thanks for updating..... I'll be honest, the margins feel pretty slim...biggest pluses are a turnkey house and $20,000 of reserves. Biggest minuses would be use of HELOC (since you won't have a chance to pull any "value-add" cash out of this house).... and only 20K in reserves.

A few final questions I would consider:

Does "un-official" retirement community mean that you could rent or sell to anyone? / What's the area like? Stable? Any population growth? Appreciation in home values? Near companies, hospitals, etc.? i.e., good area for rentals?

Sounds like you have a good handle on the numbers. Run them again with real dollar signs....and then, hey, this could be a great opportunity. Or....you could stick to your decided criteria and pass..... For me, in the end it's important to have a plan that allows me to sleep well at night - meaning reasonable risk and a solid exit strategy.

Trent Reeve · Answer

to go further. i was looking at a 2 bed, 2 ba house, with a loft for more space/office/etc, and 1 car garage. In an un-official retirement community (almost all houses 2bd/2ba, around 1k sq ft, quite a few of these outside Atlanta). estimated rent is around $1650. house does not need any updates, looks in very good condition. low HOA ($40/month) that pays for outside landscaping.

Trent Reeve · Answer

the 25% down was the amount required by lender. and it is not the whole HELOC, actually less than half. And i do have about $20k in cash reserves.

Justin Winn · Answer

There are several variables that could make the numbers you said sound correct (loan term and  rate). However, I’m curious why you want to put 25% down, and if you are using a HELOC then do you have additional cash reserves you can use in the event of an emergency? If not, then I might encourage you to wait until you have access to more capital. Also, keep in mind that a HELOC is a moving target when it comes to interest rates, and with rates on the rise currently, I personally wouldn’t want to carry that for more than a few months 3-6, in this environment because you could go from 1-200 to negative in a few months.

I hope I addressed your question.

Today's market profit??

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