Rental goals and possible set backs

6 Replies

So I am currently in the Marine Corps and will be getting out in about a year from now. I will be looking to buy a home for 100k with 7k down.

My concerns are,
1- not being able to produce the rental income I will need to in order to come out with $200 cash flow

2- the property sitting vacant more than 2 months.

3- I still need to learn more about upfront costs other than the down payment.

And finally I am not sure what The course of action would be if a tenant destroyed a home due to being evicted.

My goal is to have a 100k home with 7k down with a payment of no more than $550 mortgage and rent set at 1,500 this should cash flow nicely with taking into account,
($200) property tax
($120) insurance (?)
6% management
5% vacancy
10% repairs

What expenses am i missing?

I am aware that to get 100k home to rent for 1,500 is going to take some hunting but i think it is realistic.

Any advice would be greatly appreciated.

Thanks in advance!

I would say that 6% management is really low.

This is a service that you want to pay for the best of the best. 

One thing I would suggest is that this whole thing of a tenant "destroying" a home is not really as frequent as you would think.

I've been doing this for about 10 years now and I currently have 66 homes. I don't think I've ever had a tenant destroy a home.  Typically, the worst case is you have carpet and have to replace it all because the tenants never took off their shoes. Then paint the whole thing and maybe some trip.  Then spend 400 bucks on a dumpster to get all their trash out. Fleas. One even snuck in a cat on me that peed and I had to yank up the flooring, trim and some drywall even.

Thats probably the worst you're looking at. I don't think I've ever had a tenant do any malicious damage to a house before. One stole a fridge on the way out. Another stole a shower head on the way out.  Thats two things in 10 years and hundreds of move outs. Paint and a good cleaning are typically all you need.   But even on the bad ones, the worst tends to be the flooring and leaving a bunch of trash.

Stick to decent areas with decent schools and you'll be fine. And don't do carpet (use laminate, vinyl plank, or tile) and you would be surprised at how low your turnover costs are as you'll typically just need to paint and clean and do some minor repairs (gfi's here and there, appliance here and there).

You need 20% down (maybe 15% if lucky or up to 30% if unlucky) for a investment property. Unless you intend to live in it for a year or so then you could do VA or FHA. The low down will kill your cashflows but you'll have potentially no money down.

Also, mgmt is going to be 10% you MIGHT get a percent up/down of that, but not 6%. You're also likely to see 50-100% of the first mo rent go to the management company with a 12 mo lease and then upon it's renewal. 

Lastly, 1500 is ambitious, what market are you looking at? Have you compared what 1500 in rent gets vs the purchase price?

Matt,
Thanks for your response!
I have not looked at the rent vs purchase price. I honestly was just hoping to find a market that it is realistic for 100k - 1500 a month rent. Is there a website I can check this? I was going based off rentometer but used all the free searches so now I’m stuck.

As far as money down goes, does the same apply with owner financed? Or is this case by case .

Thanks for your time!

Hello @Jordon Mayo Happy Veterans Day and thanks for your service!  Glad to hear you are taking the initiative and going for it, but have to toss in there that it is SUPER easy to buy and sell rural land in any state. We, quite often, buy and sell property and never even see it! As long as you buy it right (do your homework, etc.), market it correctly, you can sell it quickly with a nice profit and never have to leave town! And if it takes a few months to sell, there is nothing to maintain so it's perfect. Holler if you need tips!

Originally posted by @Jordon Mayo :

Matt,
Thanks for your response!
I have not looked at the rent vs purchase price. I honestly was just hoping to find a market that it is realistic for 100k - 1500 a month rent. Is there a website I can check this? I was going based off rentometer but used all the free searches so now I’m stuck.

As far as money down goes, does the same apply with owner financed? Or is this case by case .

Thanks for your time!

 100k is going to take you somewhere in the midwest. Cleveland, Indy, and KC are some of the more popular areas. 100k MIGHT get you a duplex that'll rent around/near 6-800 side to get your 1500 mo. You're more likely to either get high returns on lower class properties which is terrible for someone OOS and even more so who are new. You'd need probably 2-3 houses and sec8 tenants would get you 1500 mo for probably somewhere close to 100k. Now, these house... you're not going to be able to get traditional loan very easily, they won't appreciate much if at all, and the cashflow while high won't actually do much for you. One big ticket item or tenant issues could eat up all your profits. 

100k is right on the cusp of getting something better. 110-120 probably get you a decent 2/1 rent for 11-13 for example. You could get condos cheaper but the HOA cuts into profits. 1% is pretty standard right now.

Now exceptions do exist, but you have to seek them out. You have to master the area you're looking. You have to see through the noise and be able to pick out the one that isn't like the rest.... 

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