Am I getting in over my head?

3 Replies

Help! I am a newb when it comes to real estate investing. A family member came to me recently, knowing that I am looking to get into REI. He is selling a property in a rural area about an hour and a half northwest of Detroit. This property is on 10 acres and has two duplexes on it. His original plan was to develop the other 8 or so acres, but is getting older now and doesn't want to put in the effort of developing the properties. Here are some numbers on it, Revenues: Two upper units rent: $710/month Two lower units rent: $660/month Each unit has an external garage that rent: $50/month Total - $2940/month Expenses: Taxes: $6140/year Insurance: $1200/year Utilities: Well and septic. Electric, propane gas and cable (available @ tenant's expense) It was completely renovated in 2001. New roofs, new windows, new 90% efficiency propane forced air furnaces, new sinks and counter-tops and new carpet throughout. Sale price: $275,000.00 Land contract available, with appx. 40% down Is this something I should look into? Are there other figures that I should know about? Thanks, Steve

@Steve Lyman

Based on what you've presented here, looks OK with a Cap Rate is about 9.6% with about 2202 in cash flow a month. I'm not familiar with your area, but from what I've heard, you could probably do better in other areas of Michigan. However, the development of the balance of the land is an interesting add-on and potentially your value add here. 

With that said, I'm concerned about the property being in a rural area. Make sure you investigate and understand the local rental market, as (generally speaking) rural areas have smaller populations, fewer renters, and lower appreciation. Filling vacancies and improving the rent rolls may be difficult.

-Christopher

Originally posted by @Christopher Brainard:

@Steve Lyman

Based on what you've presented here, looks OK with a Cap Rate is about 9.6% with about 2202 in cash flow a month. I'm not familiar with your area, but from what I've heard, you could probably do better in other areas of Michigan. However, the development of the balance of the land is an interesting add-on and potentially your value add here. 

With that said, I'm concerned about the property being in a rural area. Make sure you investigate and understand the local rental market, as (generally speaking) rural areas have smaller populations, fewer renters, and lower appreciation. Filling vacancies and improving the rent rolls may be difficult.

-Christopher

I guess I should note that I figured in 8.3% for Vacancy and 15% for CapEx/Repairs. These numbers may be different in your area, but have worked out OK for me on newer properties.

-Christopher