Does this area seem profitable or am I missing something?

Question

Hey everyone, I'm Steffan, a 25 year old pilot moving to Fargo, ND with my fiance in a few months. We both have credit scores around 760, this will be our first home, and we make about 95,000 a year together.

I am interested in buying a town house or some other single family home that we can live in for a few years at the longest, and then can use as a rental property once we move on. I have learned a decent amount about being a landlord on the BP forums, through the podcasts, and through other research. That is less of my concern than finding the right place.

I keep looking at different town houses and by using the 2% rule, the 50% rule, and anything else I have heard about. I just can't seem to find anything even near the figures I am supposed to be looking for by using these rule-of-thumb figures.

I'm not necessarily looking for huge positive cash flow, I just would love to have a relatively low maintenance place that I can hold on to that at least pays for itself every month for the purpose of building equity.

Two places that serve as an example for the sort of houses i'm finding in the area are as follows:

1. A town house for sale in Fargo, listed at $134,000, built in 1983 and in seemingly good condition. I'm estimating it could rent for ~$850-1000 a month.

2. A town house for sale in Fargo, listed at $150,000, built in 1985, also seemingly good condition. I'm estimating that it could rent for ~$1,100-1,250 a month.

I understand that there are a ton of factors that are involved that I haven't yet accounted for, I just wanted all of your opinions. Is there a way I might be not making a mistake with one of these sorts of properties, or should I rent for a year or so (ugh) and wait until I move to a different market to buy something?

Thanks everyone, i'm excited to join the BP community!

Links to the houses on Zillow in case you're curious:

https://www.zillow.com/homes/for_sale/Fargo-ND/668...

https://www.zillow.com/homes/for_sale/Fargo-ND/102...

Eric Heinen · Answer

Why are you interested in buying a town house?  There's much better properties to buy around here.

Nik Moushon · Answer

Personally I dont really go by any of those percent rules. They dont work for most markets. Plus they really are only a good way to see if a property is worth doing more numbers on. Not really a stead fast rule that if they meet those standards they work. When I do the math I just use the BP calculator. Once you know what to look for and where you can get very proficient at using it. Even if you are guestimating some numbers, by using the calculator, you are going to be a lot closer to reality than using the percent rules. Plus you have a better start to go to even more detailed number later on.

David Cruice · Answer

Sounds like you and your fiancee are both young with no kids.  Consider purchasing a 3- or 4-plex.  Stay away from SFH if you can.  Too much squeeze for too little juice!

Steffan Anderson · Answer

Derek, my job at the jet center starts on April 1st and if I can't find something by then, we'll have to rent for a few months until we find something better. We actually offered to buy the 5plex by the hospital downtown, but the home inspection didn't go well so that fell apart. I'd love to get a multi-family home but it certainly seems like good ones are hard to find. I'm coming to Fargo for a few showings on Monday and I'll be seeing a small 4plex in Moorhead.

Derek Holt · Answer

When are you moving to Fargo?  The market is pretty light right now. You will see more properties pop up for sale in a few months when its not so darn cold.

Derek Holt · Answer

Steffan, There is a industrial park 1 block to the north and a trailer park 2 blocks to the west. trust me, You can find a better location...Have you thought about buying a 2-4 plex and renting out the other side/units? Its a great way to learn the industry and will help you snowball your income into the next property. You may not like it right away, but its a sacrifice for your future. live in it for a couple of years and save up money for a nice mid level SFH or just keep buying properties and renting them out. Who knows how long you will be in the area. Again try to find a property that doesn't say freshly painted and fixed up. You are paying for that. Find something that needs a little work and make it for yourself.

Ali Boone · Answer

Hey you're a pilot! I'm a long-time CFI. There was a chain a long time ago on here calling all the pilots to reach out and say hello.

Not everywhere will allow for cash flow. It's just the down and dirty of it. Sounds like your areas are some of those. The 2% rule is really sparse in general right now (I'd be leery about anything I find that meets it), and then it's just neighborhood by neighborhood.

If you can't find any cash flow, maybe run the numbers on other scenarios. Renting while buying a cash-flowing property elsewhere. Or....whatever. But just know it's probably not you or you're just not finding it, it may just not be there.

Steffan Anderson · Answer

Thanks Nik, thats very helpful information as I don't know much about how to calculate all of the numbers yet. I definitely would be able to handle a 20% down payment, I think that makes a lot of sense. I actually will manage the house for as long as possible, so hopefully that means we're a little safer for a while and stay in the range of positive cash flow. Out of curiosity, to do the math did you account for the rule of thumb 50% rule on additional expenses?

Nik Moushon · Answer

I did quick numbers and the $150k one works out better than the $134k one. But I changed two things.  One being I did 20% DP instead of 5% and I had it at a purchase price of $140k. With my guessing at expenses this would net you about $100/month. Now if you manage it then thats an added bonus. Now you don't have to do the 20% DP but with the both of you making what you stated that shouldn't be hard to do. Otherwise a 5% DP would kill your cash flow.

One way to look at, since you dont plan on renting it right away. Is hope for good appreciation and calculate your DP so that when you are ready to rent you will have the option to refinance. This will let you leverage the equity as well as get to the 20% mark so you dont have any PMI to pay.

Steffan Anderson · Answer

Derek, Thanks for the response! Very exciting to hear from someone who knows the area. My price range could be anywhere from 100,000 to 220,000 honestly, as long as I knew I was buying something relatively low risk. I don't mind spending more if it means I have a better chance of keeping someone inside of it after I leave. I don't have much know-how when it comes to projects but I do think i'd have time to learn and improve a house with some projects. We are first time home owners. I'm curious why you'd recommend against the west fargo house? I have no information on this so it's incredibly valuable to get your input!