SFR rental in C class. Good deal?

Question

Hi BP,

I'm working on another deal and was wondering what you all thought as experienced investors.

It's an SFR in a C class neighborhood.  It has 4 beds and 1.5 baths about 1670 sq. Ft.

Asking price is $35,000, but hoping to get it for $30,000 for a cash buy.  It needs approximately  $10,000 to get it rent ready.

Rent is roughly $900 to $950.

Insurance is $72/month

Taxes are $150/ month

Water/sewer is paid by me and is estimated at $70/month.

I estimate repairs, cap ex, maintenance and vacancy to be 36% total.

No mortgage.

That puts me at around $250 to $300 a month cashflow.  I'm not expecting much for appreciation.

Would you do it?  What do you think?  Do you need more info?

Thanks,

Jesse

Jesse Richardson · Answer

@brent coombs, I would rather do that too, but I don't have a portfolio bank that I'm working with and I have 7 loans as it is which puts me me in a high cash requirement because of the lending laws (6 months x all mortgages + closing plus+ 25% down)  so that's a lot of money for me. So doing this deal at 7.5% CoC is better than letting my money sit.

I think I'll do the deal and refi cash back out a year later.

Jesse Richardson · Answer

John,

Thanks.  That's exactly what I was thinking.

John Santero · Answer

I deal with low end rentals and I agree with part of what alex franks mentions with regard to ARV. Cash flow is the objective here. If you can get $900 from a $40K investment I would do it in a heard beat then once you have your renter and some seasoning- get a loan and pull out some cash and do it again.

Brent Coombs · Answer

@Jesse Richardson, from what I read, most regular deal hunters would not be content with 7.5% CoC, which is what your $40k will get you with this one.

I'd probably be more inclined to only put $10k into it, and borrow the rest. (Yes I know, anything less than $50k tends to be not even sniffed at by Lenders - but how about 4 similar deals at once - lent by a Portfolio Lender?)...

If the numbers don't stack up enough for you with having to service a mortgage, pass!?

Alex Franks · Answer

ARV means nothing with low end deals. As you will never get that out. For lower end deals the turn  over is so much more. I am sure folk will disagree with me. For class c and lower I base rental income on 6 months out the year. I do a proforma based on those numbers.  Any thing less then 2 bathrooms is also another issue for most renters.

The reason I say ARV means nothing, this is a rental. You should be basing numbers on potential income in the property versus cash out lay. Cash on cash return should be your focus.

Just my two cents.

After years of dealing with low end rentals for my self, and clients. I refuse to look at anything that is not a A or B asset. Now with Apartments I will lower my standards just a bit. In the long run the work and headaches just not worth it.

Alex

Please bare with my spelling and grammar its 430 am

Jesse Richardson · Answer

ARV is $55 to $60,000 based on comps. These numbers are from the BP calculator.

Thanks for helping and for the advice

Simon Shih · Answer

What's the ARV?

Brian Lacey · Answer

I would use the BP Rental calculator.

Then look at comps about what I can expect.

Keep in mind you're not buying a property, you're buying the tenants that will rent it.