My husband and I have been considering purchasing a small rental property for additional income. We have found a very small, but in relatively good shape, property for $35,000. It has been for sale for approximately six months, by owner. We have negotiated a price of $33,000 on the property, which is currently rented for $550.00 per month. The seller has been very forthcoming in telling us that he does not know what the tenant's future plans are, as they are currently expecting a child and the residence may be too small for them. However, the seller tells us the property has never sat empty for more than a couple of weeks. The tenant pays all utilities. The property taxes are about $450.00 per year. We would be taking money out of our savings to purchase the house, which would not leave us penniless but it would take a substantial part of our savings....... but we would not have a mortgage payment on the property. Right now, the money in savings, of course, is earning us nothing. After reading on some different websites, I have estimated the cap rate would be around 10%. Is that a decent return? Also, the seller does not want to pay for a termite inspection and I am not sure I want to carry that expense. ....would not doing so be a poor decision? Also, the property is very close to my husband's employment and he is very good with repairs, so he would be doing most of the maintenance. And I have not priced home insurance as of yet. Any advice or anything I am overlooking? Any suggestions would be greatly appreciated!!
Using the BP calculator, it looks like it will cash flow nicely and provide a solid ROI & CoC. So, if these numbers fit your goals, it looks like a winner. If you will have 6-mo of expenses covered, between the cash flow on this property and the remainder of your saving, it would make sense for me. I do have one question, is the current tenant under lease or month to month. If they are month to month, I would want to get them under lease for at least 1-year. The baby isn't going to need room that quickly. That sort of thing can often be "encouraged" by telling them you are raising the rent, but will keep it at it's current level for them, if they will renew. It would be worth working with the seller to try and get that done as a contingency. Also, on the termite inspection, it isn't that expensive, usually
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