Rental Property Investor · Odessa, FL · Member since 2017 · 145 posts · 113 votes
I bought a property in Lakeland recently (3/1 925 sqft) . Asking was $85k, after inspection we agreed to $64k.
The house was in rough condition but seemed manageable. The AC was working during the inspection but was old. After the purchase seems like my AC died and I'm in for another $3000-$4000 for a new AC.
The repairs are about to cost me aprox $17,000 including the new AC and my total is about to be roughly $81k for a rental property that will make around $850/m before management services, taxes and insurance.
My calculations put me in about 8-9% annual return on investment. Did I get a really bad deal or should I just learn from this and not eat myself so much and just be happy with my 8-9% ?
Ya know, I talk about this a lot in the podcast I'm on (#244 - see below for link).
So many people beat themselves up because a deal is "only" 8% or whatever it is. We do ourselves a disservice when we compare our deal to other people's deals. Or to other deals we've done. Here's how I approach it.
Where would I park my money if it were not this deal? A T-bill? An S&P Index Fund? A CD? What are the rates there? 2%, 5%, 1%? (I honestly don't know - I'm actually guessing here).
If your deal is doing better than that, then who the heck cares if it's not 15%? We get so wrapped around the axle about "maximizing our returns", that we forget that:
A. Real estate is a VERY imperfect science. It's probably closer to an art than a science.
B. When you're just starting out, any profitable deal is a good deal.
C. Comparing yourself to everybody else is just going to make you miserable.
Your deal sounds just fine. It's a nice, solid base hit. Maybe even a double. They can't all be home runs.
Good topic. There is a risk in buying properties that have older improvements, that are still functional. Old galvanized plumbing, old furnaces, roofs and windows...
These properties are tricky because there will be above average capital expenditures needed in the next ten years. Cash flow alone may not cover the upgrades over time.
But as you do update the building, you possibly create value for a future disposition.
I wouldn’t beat yourself up over a 1-2% return, especially on such a small amount. It probably only comes out to $50/month or so. You still have positive cash flow and that difference will not make or break you. You just need to keep on moving and adding more deals to your portfolio.