My name is Jeremy, I am from the Pittsburgh, Pa. Area. The following post will be in regards to a property that I have analyzed for purchase and feedback would be greatly appreciated.
The house: Asking Price: $54,900---- 768 Sq ft/ 1bed/2 bath, New furnace, hot water tank, new kitchen appliances, newer washer and dryer, newer roof, newer AC unit, anticipating no major expenses within the next year
Link to house-http://www.realtor.com/realestateandhomes-detail/4127-Lebanon-Church-Rd_West-Mifflin_PA_15122_M32818-38813
The Plan of action: The current owner is in a rush to sell,(friends of the family) most likely will sell for mid 40s, Place and offer for 40K hoping to settle for house between 45k-50k including all closing cost.
Area- Average house rents for $650-$850 for 2bed 1 bath. I will be updating the current basement into a master suit with updated bathroom.Which would put me into the $750s for rent. The current area has good location for city workers/ local business.
Estimated rehab cost 10K. I have ran the 50% rule with this property after the remodel and the numbers are as follows:
Purchase price $60,000(including remodel)
Mortgage-not including taxes and insurance- $260/month
Approx insurance yearly: $800/12=$70
Approx Taxes yearly: $1900/12=$160
Total monthly Expenses: $260+$70+$160=$490
$750 rent - $490= $260
$260 x 12 months= $3,120 / $12,000 Down payment= 26% return in one year with no problems/ maintenance.... Even if you cut this in half I feel at $130 cash-flow a month for this property is good. If you look in the link the pictures are helpful determining the house. Beautiful backyard, shed, new driveway.
If you could provide and tips/ feed back, it would be very helpful.
I'm a newbie myself, working on purchasing my first property in the near future so don't take my comments as gospel, but here are a few thoughts:
Your Total Monthly Expenses exclude any budget for maintenance/repairs, or anything other than mortgage payments, insurance and taxes. I could be wrong, but I believe the 50% rule estimates operating costs at 50% of monthly rent, excluding mortgage payments.
That would lead to the following:
$750 - Monthly Rent
($375) - Operating Exp (50% rule)
($260) - Mortgage Pmt
$115 - Cash Flow/Month (close to your lower $130/month estimate)
or $1,380/yr on $12,000 for 11.5% CASH YIELD - not, return. In additional to this income, your return would include:
1. additional paid-up equity through each month's mortgage payments, as well 2. additional income as a result of tax savings derived from mortgage interest paid.
3. Price appreciation
To summarize, IMO 11.5% Yield is not bad and your return, if you receive this yield, would be higher still, assuming the house does not depreciate.
More experienced investors, please, if I've misjudged a point call me out so I understand it more clearly.
@Jeremy Hoffman You may want to aim for the deal analysis section for this kind of post, for future reference, but I'll weigh in here.
To me, this all looks fine. Looks like you're being conservative on month to month. If you have closing costs and a little extra for cost overruns, the numbers seem viable. Good luck!
I appreciate your advice and clearing up the 50% rule... Ii have lived in the area my whole life and depreciation is always possible but I feel the area will remain the same or increase in demand. Also the surrounding properties are 120k with great home owners so I feel the area will be very lucrative to a renter.
It sounds like your more knowledgeable than I am with the tax situation for real estate. Are you able to provide any links or info so I can read more on what you mentioned?
Thanks in advance,
Thanks Eric. Just getting started on the forums. Will post there in the future.
@Jeremy Hoffman Overall the property seems a solid investment. I would strongly recommend following Eric's advice to post in the deal analysis section if you've not done so already.
Per more knowledgeable w/ tax situation, I'm sure I know more than some but less than many others. Just trying to continue learning and gain understanding. My advice on these types of matters is take a piece of advice (like mine) and don't trust it 100%, but rather try to prove it by research. As you go, you'll learn much more.
As for a link, i just found the following on biggerpockets. Also, i found Frank G's book excellent for all things financial and consider it a must read.
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