Would you buy this rental property? quick info inside

Question

Hi,

Had a tenant last year for: 1,250/mo

The place is a dump, I would clean it up and make it nicer for just the price of the materials as I am a contractor myself.

Holding Costs 1100/mo

620 interest payment to seller

238 taxes

50 rental insurance

80 lawn (only 6 mo a year)

115 maintenance (1% of total cost per year rough estimate)

After Repair Rent: Minimum will be 1,500/mo.

good school district.

Does taking control of this house and making at least $400/mo make sense?

Is a headache just to make 400/mo or do you view it as a good property to add to a portfolio or do you say the numbers aren't any good, pass on the deal? thx

John Ratigan · Answer

paul, it's a top school district in the country, every nice area has one not so nice area...but it's safe! i don't think the house will appreciate but the land will.

Account Closed · Answer

yes its a good investment ask 1,500 get 500 per month 10 month get 5,000 back and from then on is profit, good school district 500 cash flow that thing probably has upside also I don't know Pennsylvania to well but if that was in my neighborhood is a good long term buy.

Jim Hogan · Answer

John, I am guessing this is in TE schools.  How many bedrooms?  Is it a single, twin or other?  Your rent increase is probably on the mark, depending on bedrooms and if I am right on the school district.  I am selling a 4 bedroom cape that we were renting for $1595 a month for 2 plus years in Berwyn.  It was cleaned up, painted, and updated kitchen and bath before we rented it.  We priced it below market to rent it quickly and at $1595 it is still below market.  If you decide against the property that you are talking about let me know the address I maybe interested.

Dominic Lucarelli · Answer

One thing I've done is place a test ad on Craigslist in the target area at your target rent you're researching. No address, no pictures. If you get back 20 responses in a week, that's a great price. If you get back 5, you might be a bit high.

Good luck. Keep us posted

Steve Babiak · Answer

I think some expenses might be missing: rental license, rental inspection, trash, landlord paid utilities (some municipalities won't allow certain utilities to be in name of a tenant), vacancy factor, reserves for capital expenditures.

Get clear on the terms of the financing. Only interest is given; will there be any principal getting paid?

Then you are hoping for or assuming that the rent can be $250 higher than before - that's quite a jump, like 20%, so be very certain that places just like this in that same neighborhood actually rent for the hoped for amount. $250 could be the difference between positive and negative cash flow.

Michele Fischer · Answer

John, I didn't run it through my calculations, but seems good to me.   It depends on what your other options are and what your real estate goals are.

Watch out on the seller financing.  Most sellers will only finance for about 5 years, so how will you come up with the payment at the end?  They will likely want a higher interest rate as well.  Are you offering asking price?  You might not be able to get a reduced rice and seller financing.

John Ratigan · Answer

@greg scott, it will be around 5k, I'm not going to go crazy doing this house up, I want to get in, clean it up, re-do the bathroom, sand the floors, paint it, cheap new appliances. then put it up for rent. I can re-do a bathroom for around 1200 just for materials. so 5k goes a long way for me.

financing hasn't even been discussed, the house has been sitting for a LONG time and i plan on presenting an offer to ask for seller financing. what would you recommend? i was thinking like 5% down with 7% rate? ive never done seller financing, i am very young.

Greg Scott · Answer

The one needed piece of information is what will be the total repair costs?

Also important, what kind of seller financing are you getting? (for example, is this an interest only payment with a balloon)

FWIW, my tenants are responsible for caring for the lawn.

John Ratigan · Answer

i can easily get the 1500, thats conservative and if i only sanitize the place so to speak, clean it.

work will take 2 months tops

repairs 5k

self manage

Frank Dimino · Answer

What's the average rent for the area? can you get $1500/mo? How long to do the work? You are in the hole each month its empty how good is the area, you need to allow for vacancy at least 1 month.

What will repairs cost you in total? you need all these numbers to figure how long it will tak ejust to break even.

Are you going to self manage? I don't see management cost anyplace but it's a good idea to account fo it even if it's going to you.

Would you buy this rental property? quick info inside

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