Should I make this investment?

Question

SFR 3B1B in the midwest in a B- area D schools.

1000 sqft

purchase price $25,000

repair cost $40,000

ARV- $75,000

Rent $900

Cost per month: Vacancy $90, CapEx$27 (figuring after putting $40,000 shouldn't need a whole lot more? maybe) Managment $81 property taxes $100, Repairs $90, Insurance $50

P&I 139 - 15 yr amortize with 4% interest rate; closing cost $1000, loan pts/fees $687

I am guessing at interest rate and closing cost and fees in sentence above.

This could be my first out of state rental. Would love to hear your opinions.

Thanks a bunch,

Fred

Ned Carey · Answer

@Fred Latimer My bad. I did the math wrong. It still wouldn't excite me especially since it is a long distance deal.

The d schools would bother me. Of course the F- schools in Baltimore don't seem to bother me, so I guess I am being a hypocrite.

Sterling White · Answer

I agree with @Ned Careythat is a extensive rehab for a property with the ARV being as low as it is. If you are going the route of being all-in on a property 75k with rent 900 depending on what market you are in shouldn't be difficult to purchase a property rent ready at 75k for that 900 rent.

What market are you looking in?

Frank B. · Answer

Your CAPEX is too low--should represent the long-term average cost of crap breaking and you replacing it.

So say you put in a higher CAPEX and update your mortgage pmt and you still cash flow $200/mo.

That's fine, but if I understood your numbers right you are only financing $25k, and coming out of pocket 40k.

$200/mo is a 6% cash on cash return. Not to say that's good or bad--it is what it is.

For me, 6% is pretty thin, so it would not be the kind of deal I'm looking for.

Also your cap rate looks wrong, although I don't think that metric is used much for single-family.

Account Closed · Answer

To everyone that responded I want to say thank you! This BP community is just great! This is definitely making me a better more informed knowledgeable investor.

The rest of the story is I passed on this house. Foundation issues, water issues and potential for more expensive cap ex kept me away!

Thanks a bunch to all of you!

Fred

Account Closed · Answer

@Ned Carey I like your honesty the school comment made me laugh! @Jerry W. thanks for pitching in I appreciate your comments.

I didn't put this in my original post, but looks like it should cash flow a tad over $300.00/month. Cash on cash 8% purchase cap rate 22%

Am I just trying to convince myself?

Fred

Account Closed · Answer

@Ned Carey all in cost is $65,000 does that make a difference in your opiniion? Should have $10,000 equity. @Ray Fisher  I agree there is a shot at eating up cash flow with CapEx.

Thank all of you guys for your input!

Fred

Ray Fisher · Answer

300 month, 3600 year, 36000 in 10 years. minus some cap ex and insurance, over that amount of time, your still cash flowing.

I would try to cut rehab costs myself. make it nice, make it clean, it's a rental they don't respect it like it's theirs.  go look at rentals in the areas, see what the competition is.  use the colors of the big expensive homes in the area, It will rent fast. mine are rented before i'm done almost every time.

Jerry W. · Answer

@Fred Latimer, I agree that the time and money involved in rehabbing is not worth the small amount of equity you generate.  I applaud your enthusiasm and sticking to nicer neighborhoods, but I think you should be able to do better in the Midwest.

Matthew Murphy · Answer

I would never put that much rehab into a rental with numbers that tight. Much better to put that kind of money into something that gains you equity, and possibly higher rent.

Leo Don · Answer

be careful of pigs cause we all know soon or later they all get slaughtered!!

Should I make this investment?

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