Would you purchase this house as a rental?

7 Replies

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?

Francis,

Please get inside and make a full eval. on Renovations/Updating. Then re-run the numbers. This is your first investment I believe so touch the water with your toe b-4 your jump. I do agree the 2% is a tough number to hit in NJ but I will suggest that they do happen and you just have to be prepared, ready and patient. IMHO defense is the best offense so make sure you give yourself cushions on all the numbers. Best of luck and keep us informed.

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

@Bryan H. Thanks for giving me your thoughts.

House is only 1261 sq feet. Maybe I am not being conservative enough for my renovation budget however, Fannie Mae just did their own renovations.

I am only going to put 10% down.

Originally posted by @Account Closed :
@Bryan H. Thanks for giving me your thoughts.

House is only 1261 sq feet. Maybe I am not being conservative enough for my renovation budget however, Fannie Mae just did their own renovations.

I am only going to put 10% down.

OK cool. Your numbers are spot on then. I'd definitely consider buying this then (if I was in your market) It may be tough to get them to move on their price if they did make repairs/updates. Make some offers- good luck!

@Francis Longo This look s like a decent deal but you have left out some important information. How much are you putting down? You can't calculate cash on cash return without knowing how much you are investing.

You have mentioned the 2% rule (unimportant) but you have not mentioned how your expeses relate to the 50% rule(important)

Oops, I see two new posts since, I started composing this one

@Ned Carey I mentioned I am planning on putting 10% down. I also looked up the properties property taxes historically, estimated insurance based on comparable houses in the area and then estimated utilities.

Estimated $500/annually for repairs/reserves.

@Francis Longo I think your repair and reserve number is too low but this is still a decent deal - good luck with it.

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