Updated over 11 years ago on . Most recent reply
Would you purchase this house as a rental?
Investors,
Looking at one of my first deals. Let me run you through the numbers and get your opinions.
Property: Needs very little work. Small paint, new appliances in the kitchen and that is it. Foreclosure, listed around $155,000.
Agent thinks price will come down to more $145,000-$150,000 range over next 30 days.
I am walking through property this week. Already drove by and walked the lot. It is a 3 bed 2 bath, solid curb appeal. Small backyard unfortunately, oddly situated on the lot. Good curb appeal though. Looking to make an offer in the $135,000 range.
Based on comps, this neighborhood is 3 blocks from where my family lives in now, so very familiar, will be $1750/month in rent.
Plan on having tenant pay all utilities, or I will pay heat/hot water.
Probably put about $5000 into it to freshen it up, make it pop.
Assuming 4.75% mortgage, insurance, taxes, utilities (trying to avoid all), I think it will cash flow $350/month.
It will be easy for me to manage given the location. Neighborhood is a starter home community.
This does not meet the 2.0% rule...but I think my projected rent of $1750 / all in costs of $135,000 plus ~1.5% closing costs, plus $5000 renovation = $142,025 = 1.23%.
I think thats a pretty attractive yield for my first time flip. Estimating about a 20% cash on cash return (assuming 1 month vacancy to rent out, $500/annual repair/reserves)
I haven't seen any properties (YET) where I am going to hit 1.75% - 2.0%.
Thoughts?
Most Popular Reply
Not going to question the property and the rents, just your math.
purchase = $135k
20% down = 27k
mortgage @ 4.75% = $563
50% rule = 1750 x 50% = $875
$875 - Mortgage = $312/mo x 12 mo = $3744
Cash invested $27k + $5k (fix up) = $32k
ROI = 3744/32000 = 11.7% (much less than the 20% you projected)
Yield = 1750/142000 = 1.2%
Without seeing the property, I will honestly say a $135k REO will need much more than $5k to get it ready to rent at $1750