Investment opportunity or not?

5 Replies

A SFR is selling for $315k that a person plans on purchasing as an investment property. The individual is required to make an investment down payment of $63k (20%). Additional expenses include: $600 yearly insurance, $30 HOA, and $100 monthly management fees. Monthly mortgage payment for 30 years with 4.5% interest rate is about $1,400 (total monthly).

The property is currently being rented for $2,400 with an immediate positive cash flow of $1,000. Seller will not budge a penny on the selling price.

Is that a reasonable investment? Requiring 63 months for an investor to get his initial down payment back, plus chipping away a bit of the mortgage, and possible appreciation?

Note: Decent location with about 3-4% yearly appreciation.

Breakdown:

1. PITI & Management: $1,400

2. Rental: $2,400.                

3. Initial Investment DP: $63,000 (20% of $315k) 

4. Monthly Positive Cash Flow: $1000

Thoughts?

Take your $1000 cash flow, then subtract $100 for management that you stated and 20% for future vacancy, maintenance, and capital expenses. That brings your cash flow to $420. That is good cash flow but only an 8% return on a $63k cash investment. That's not a deal I would personally do, because of how much cash is needed to buy the property.

I agree with Jason, in that the amount of money you are putting into one property. Still, you have to do what makes sense for you.  That being said. I would do those numbers on a multi-family unit to limit the effects of vacancies. If someone moves out then you are negative cash flow $1,400 a month plus repairs. That is -$4200 plus repairs for a new renter in a time frame of 3 months.  Just something to think about? 

Thanks for your input Jason and Thomas.

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