How does this investment sound?

5 Replies

I am looking at investing in a townhouse right by my city's university (walking distance). It is 2 bed 2.5 bath and has already been updated with granite in kitchen and half bath and composite wood floors and tile throughout main living areas. Carpet in bedrooms and bathrooms still have laminate counters. the cost is 120,000 and the rent should be around 1200 (we will go with 1200 for ease but I feel I can get 1250 because of the improvements already in the home). My numbers look like:

Gross: 1200 

Operation expenses budget: vacancy 60 - management (done by me but budgeted in case I need to hire a PM) 120 - taxes 110 - insurance 60 - est maintenance 75

NOI: 660

Financing: ~550

Capital Expense Reserve savings: 50 (only responsible for HVAC and internal plumbing)

Cash Flow: ~60

Considering I plan to manage the property myself and the townhouse is in excellent shape I may cash flow the management and some of the maintenance costs on good months. 

Let me know your thoughts. This will be my first investment property and I am worried I am going about this wrong.

Hello and welcome to this site Nicki! A few things have crossed my mind on your rental unit. First off, is that it is within a walking distance to a school. Hopefully, it's in a nice neighborhood. Does your NOI include a debt payment plus all indirect expenses? The cash flow is kind of low. Owning a single unit is very risky. Saving for the turnover expense is probably twice as much as you think. Save as much as you can in the reserve account. I hope the summer period for school people does not create much vacancy.

Work on apartment Partnerships for the future expenses. I've heard as many bad stories and good stories about single family homes. Most of the "good" storytellers owned 15 or 20 homes if not more just to pay their monthly bills. That is 15 or 20 different addresses. Why be in the largest competitor market? What is good about having to deal with an HOA?

Be rigid with your screening and try to get a tenant  will stay during the summer school period.  Good luck to you!

Your numbers show you're expecting a negative cash flow.

Your going to take a loan, get into a NEGATIVE leverage situation, and pay money to hold this property for what reason?

I would like to see your long and short term strategy on how you plan to rectify this. It seems you'd be better off leaving your money in the bank.

CapEx should be included as part of your cash flow calculation. So pursuant to the numbers you provided, you expect cash flow to be about $60. As long as these numbers include PITI (just says financing) and that it is common for students to take 12 month leases and not 10 month leases, financially the deal is a single/walk.

Are planning on obtaining multiple properties like this? Will this take all of the money you have to invest? I think these questions are what you have to personally answer and the ones other posters were commenting on.

Brandon always says on the podcast that one deal won't make or break you. This deal typifies that statement.