Hi Investor Friends
I need advice. I am looking at a property that looks like I could get for 150-160k the HOA is $42. And the possible rent is at $1450-$1600. This property is rare because it has 4 bedrooms and most around it have only 3.
Im planning to put 20% down. What do you guys think?
Hi @Rodrigo Tello , I would probably pass based off of the cash flow. I would recommend running the investment property calculator on this site for rentals and see what it comes back with. There are a number of expenses besides the HOA that you need to take into account for and once you do that I think your cash flow is going to be quite low.
My first look is that I want monthly rent to be 1.33% of cost. If the numbers are close I will look further.
This gives me an 8% cap rate assuming a 50% expense ratio.
What do other properties in that neighborhood go for? Are you getting it under market value? If comps go for $200K+ and you get it for $150-160K you could potentially get a home equity loan or LOC (line of credit) to get your 20% back. How does the area appreciate. Sometimes neighborhoods with HOA's do quite well when the market is on the upswing. It depends on what your plans are for RE investing. I know an investor that buys 1 property a year that I wouldn't consider "deals". He buys townhouses in desireable areas, puts 20% down and gets solid tenants. They don't cashflow much (all he cares about is breaking even) but he started 10-15 years ago.... and he's got 10 townhouses. They're worth $200-$250K each. Do the math..... I'd say he's going to be pretty happy with his decision when he decides to retire and cash in. Of course this strategy only works if you can come up with another 20% each year.
My point is, at first glance the numbers don't look great. If you want to buy 1 property every year or two and this is a nice property that will require very little additional investment, in an area that will draw quality tenants, this may be for you. But if you want to buy more than 1 per year and you don't want to or can't come up with the 20% ($30K + closing costs) every time... I'd look for a better deal. There are plenty of properties you can get below market value that you can put a little elbow grease into, refi and get most if not all of your money back.... so you can buy the next one... and the next one...and the next one :)
Salvatore Lentini, Mission Real Estate LLC | http://www.tenyearmission.com
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