Buying Cheap, TLC Homes to Rent

5 Replies

Critique my plan, this is what I feel fits my situation best. 

   Here's a little background on me.. 20 years old, credit is decent but lacks time (roughly 720). I bought my 1st house a year ago with my brother (84k). I rent one room out that pays 80% of mortgage. I have a FT job and a small PT business. Work roughly 50-60 hours a week I do around 40k a year. I have about 20k to invest..

Plan is simple to me, seems to easy, and that's what scares me. Help me see this through!

I want to spend (35-65k). That gets me a (Lets be honest here..) fairly run down, fixer upper in a less desirable part of my town. But a very rentable area. 

Put out around 7-10k for down payment and closing costs. 

Then do a light remodel, fresh paint all around, remodel a bath if needed, texture ceiling, drywall, wood repair, add curb appeal etc. Spending roughly 5k, more if needed.. I do all of the work myself as that is my hobby and my father is would be able to help on anything major..

Rent for around $900-$1000. After the set aside money for future repairs, should be $250-$350 in cashflow. 

My question is, what else is there. In a perfect world is it that simple? Any warnings or concerns before I proceed to find a cheap house to rent out? I am aware of the effects from lower income renters, but I don't worry as I wont have too much tied up into this property. 

Thanks

Thats the gist, but you're leaving out some major factors.

For starters, can you really acquire properties at those prices that will then fetch those rents?  Easy to do on paper, but not all markets are that purchaser friendly.  

Then you have to factor in vacancy.  Rougher parts of town mean less desirable.  Harder to rent AND more turnover (which means more repairs and fixing up in between tenants).

You also need to account for property taxes and insurance (both high throughout FL).

You also don't mention any plans for property management.  If you plan on doing it yourself, rougher areas tend to require more time and effort.  Even if it is you doing the work, you should pay yourself for it, and treat that separately from the return on investment for the rental.  

So, yea, you mention the framework pretty well, but by the time you dig in and do it all, my guess is the cashflow won't be quite what you're expecting.

Robert, thanks for the reply, yeah, I didn't go into fine tooth details as I don't have a home in mind. 30k is one thing, 65k is another. Depending on the house, location, etc, 900-1000 is very do-able. $800 if its under 1000 sq ft. I plan to manage myself, lawn would be there issue, if mine, I would pay my business/myself to do it. 

Property tax, isn't that in my mortgage costs? Insurance, most homeowners here is around $1000, I don't know about renters..? 

I also forgot to include, I'm not looking to get major cashflow returns, but more looking to start getting in the game, as a learning experiance. I want to start building a portfolio. Right now, I don't necessarily need to have a great cap rate, anything breaking even would satisfy. Down the road might be a little different..

Thank you for posting, as it helped me think of a few things.

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I think it sounds like a great way to learn the business, just make sure you have additional funds aside to make the mortgage payment while the unit is vacant.

just inspect the home really well because the roof, air conditioning, or foundation may need repair.  These items can break the budget.

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