Ok, so I've been looking at getting into this for a while and might take the plunge on one, or really, two houses. These are two small homes in the Southeast (on two different properties, but a package deal), about 800 square foot each. I'm trying to figure out what a reasonable all-in budget might be. A simplified look at the numbers is as follows:
Rents on each house are expected to be about $850. I expect maintenance and property management to eat up about 20% of that, with no property management for now. Taxes are about $3000 for the pair, and insurance will likely be about the same. I'd like a $100 per door in cash flow, but would prefer about $200, which means I can borrow up to $90k at 3.75% 30-year mortgage(s).
Monthly, it'd look like this: Mortgage*occupancy rate = Cash flow + Taxes + Insurance + Maintenance + Mortgage
$1700*0.9 = $400 + $250 + $250 + $153 + $477
Once I start to need a property management group, this should still cash flow well, which is why I'm shooting for $200 without one.
So now that I backed into my number, a few more: I will likely need about $35k to get these up and running, so all-in at this point with 20% down and $35k would be $150k (rounding up). The two houses would be worth about $110-120k each once done. This would get me about a cash-on-cash 9% ROI (not including the additional $70k the homes would now be worth immediately after renovation).
So here's the deal, I haven't tried to haggle yet, but the owner wants $185k. That'd put me at $220k all-in and tie up a heck of a lot of capital up in the process. Any suggestions here? There are some places I could bend here. I could easily do some of the work myself. I've heard/read if I'm BRRRRing I should be able to beat out the "flippers" but I just don't see it here. I'm just so close to the 70% rule...am I missing something here? Based on the limited information I've given you, does it seem like I'm being too conservative? What would be any of your max offering be assuming the $35k reno cost applies?
In advance, thanks for helping an newbie in the midst of his first analysis paralysis episode.