What's a good deal look like?

17 Replies

Everyone's looking for a good deal. But I know there are also future landlords struggling to figure out what their good deal would look like.

Let's throw some numbers on the table. We all love creative deals and owner financing, but for this query, let's keep it simple and operate on these assumptions:

  • all cash purchase
  • there is a property manager at 10% per month
  • the tenant pays all utilities
  • We will be paying less than retail

So, how much will you spend to buy and do light repairs on a typical 3/1 house in a rental area (no war zone) to get how much rent?

@Darrin Carey why assume less than retail? I bought in a good neighborhood that was decimated by the crash. All those REOs killed comps. I paid $49k all in for a non REO needing just paint and a roof. Rent is $975. Taxes are $600/yr. Insurance is about $1500/yr. That is not a great return but not bad for an all cash deal at this point.

BTW that is a 3/2 ... I won't buy a 3/1 unless I can convert it because the 3 bedrooms likely have kids in them and 1 bath is not enough.

I need to throw in finance because most people have to raise finance and the value of your own money sitting in a property is measured by how much it will be achieving in a bank. With this in mind, you must not forget that you have cash cow properties and then you have the others.

The cash cows are the property that you get for really cheap, the rental figure more than covers your finance. They are large and almost too good to be true. However the others are those where the achievable rent doesn't do great justice to finance.

I used to invest in the cash cows a lot on the other hand my brother would invest in the others. It wasn't until we both tried to sell that I realised that his property had significant capital appreciation 100 to 200k in a few years while mine was still at around the same price. I then changed my strategy to make sure I was taken into account properties in arrears that were the border of "war zone"

Since I get to pick, it has to be in my area. It has to break even cash flow and it has to be 100% owner financed. I'll pay all closing costs and throw in a few $ so the seller doens't have to bring money to the table. I would buy anything in may favorite area that fits that bill. I know people out there are cringing and if the BP faithful read this I'll get crucified. Appreciation will catch up with the 50% rule or the 2% rule or whatever rule and smack it like a redheaded step child. Don't bank on appreciation they say. I say as long as I get to pick the area I will bank on appreciation. YMMV.

@Bill S. Personally I don't say not to bank on appreciation. I say that *I* won't. I agree that there are neighborhoods where it is not necessarily guaranteed to be there at any specific time, but it will happen often enough on a periodic cycle that you can make good money. As long as you can deal with the vacancies and downturns of the market and hold it through those, you can make a killing. Nothing wrong with that. If the strategy works for you by all means go with it!

@Annunciata R. Great point. The goal is to buy the RIGHT cheap properties. If you can get great cash flow with a reasonable chance of appreciation, that is even better than either option alone.

it really depends on your area to gauge this. I have heard that Ohio has good ratios for buy & hold. Just check out further on these forums for rules on thumb and how to analyze deals. Looks like you are on the right track though.

I'm in contract on a 3/1 in working class neighborhood in Columbus. It has all newer wiring, roof, HVAC, H2O heater and appliances.

Purchase Price: $34,000

Closing costs: $1500

Repairs to get rent ready: $2000

Taxes are $1300/year

Insurance is $730/year.

Rents at $825/month.

14% CAP rate

34% Cash on Cash return with 20% down financing

@John Horner - Those numbers look great but do you experience a lot of collection/eviction problems with the lower priced properties?

@Jason Hartman , this will be my first property in this particular neighborhood. However, the comps in the area are in the $50k-$60k, so the neighborhood is not as bad as the low price makes it seem.

Tenant screening is definitely key in these middle/lower class neighborhoods.

@John Horner - It looks pretty good, we've just found that smaller, cheaper and/or older properties with rents below $800 become a different business that requires more active management. Certainly, many investors have made fortunes in the lower end of the market, it's just a different kind of business. Will this be a section 8 tenant?

Originally posted by @Jason Hartman :
@John Horner - It looks pretty good, we've just found that smaller, cheaper and/or older properties with rents below $800 become a different business that requires more active management. Certainly, many investors have made fortunes in the lower end of the market, it's just a different kind of business. Will this be a section 8 tenant?

Rents in this area are actually closer to $900 and above, but because mine is a few hundred sq ft smaller and no basement I am hoping to get a quick tenant at $825.

This will not be section 8. In Columbus I have seen most of the section 8's in the $400-$600 range.

Hi Darrin, I haven't seen anyone on this conversation talk about different kinds of deals. There is every kind of deal in every market. I believe the trick to investing real estate is taking each property on it's own merrits. That is to say, some make sense to wholesale others rent and hold and others rehab and flip and so on. Someone very successful in the business when I first began investing in SFR's once said, what most people think of as the deal of a lifetime comes along about once a week, if you're constantly marketing and evolving to meet the current market situations.

The point is, there are myriad ways to invest in real estate and to put deals together. If you have studied deligently, you're probably very aware of this and you would be considered an accredited investor based on the information you've already provided. You're well ahead of ninety percent of investors. Using your own money lets you offer a bit more on a deal than others that need to factor in financing costs such as Hard money and private capital. Not to say I don;t think you consider using others money. Spread the love. Many have money and sinply don't know what to do with it and they're losing ground ever day with CD rates. Basically, you will want to do deals that are in your comfort zone but that will get you started in the business. Of course you will most likely need to get out of your comfort zone to grow your business.

Action has always been the key to anything worth accomplihing. You don't necessarily need to dive into the deep to get started but if you at least wade in you will know what the water is like. Excuse the metephor.

Get up, get started take action

Patrick

@John Horner What part of Columbus is this deal in? How did you find it (direct mail, MLS, driving for dollars, etc)?

Thanks.

I did a presentation at the Dayton REIA last month on "What a Good Deal Looks Like". It generated a lot of comments and questions. Wholesaling and rehabbing have answers that most people agree on with some variations. Landlording has a large variety of possibilities.

@John Horner provided a good specific example. The numbers I see in Dayton are similar to Columbus.

@Jason Hartman I own low priced and higher priced properties. Our evictions are similar across the board, but vacancy is a little longer on the cheaper properties. Good screening eliminates most the problem tenants.

@Patrick Henderson I'm looking for some other landlord deal perspectives besides mine. Thus the very specific landlord query.

I should have given a couple examples when I started this thread.

Deal #1 (C Neighborhood)

Sale Price: $27,500 (I wholesaled it last week, I paid 17,500)

Closing costs: $500

Repairs to get rent ready: $250

Taxes are $900/year

Insurance is $575/year.

Rents at $750/month.

Cap Rate 17% (At my purchase about 27%)

=============

Deal #2 (D+ Neighborhood) (this is not normal)

Purchase Price: $5,500

Closing costs: $500

Repairs for sect 8 annual insp: $25

Taxes are $500/year

Insurance is $500/year.

Rented at $575/month. (Sect 8)

Cap rate is an Insane 70%

This post has been removed.

@Account Closed

Your profile is FAKE and the review you wrote is FAKE too, you do not exist, you are a troll.

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