New Investor: Is this a good deal?

Question

I am a new investor and looking for my first deal. Is this a good one? Located in Richmond, VA. class C neighborhood 2 bedroom, 1 bath, 784 SF. It currently has a long term tenant paying $810/month. Built in 1950, it has a new roof, new heating and air, all new electric and other than that the rest of it looks original and beat up. The yard is full of car parts and furniture (or I like to think of it as potential).

I was thinking that I could purchase the home and do NOTHING to it and simply collect rent. Then, if the current tenant leaves invest in upgrades to increase value and rental income.

Clayton Mobley · Answer

@Jimmy Lane without even really diving too deep into the numbers I'm gonna advise you to pass. For $70k you can get a better property than that in other markets. That's a lot to pay for a property that you definitely will need to pour additional capital into. Plus, in a C-class area you're going to have a higher-risk tenant pool than if you go with B/B+.

The pre-existing tenant is a great perk, but it doesn't guarantee that they'll stay, and the lower down the prop class ladder you go, the higher turnover you're likely to see. I see you're including a 10% PM fee, so I assume you're not planning on being a landlord. If you're already paying that for management, look for a better property in a market where you capital goes further.

Good luck!

Clayton