Smyrna, GA · Member since 2014 · 6 posts · 0 votes
First I would like to thank Bigger Pockets for a wealth of resources, and I would like to thank all the members and their valuable contributions to the community.
I am a first time investor planning to buy a rental property where I currently live, Smyrna, GA 30082
I found a basic rental analysis spreadsheet in one of the forum posts, and I have put the numbers in based on the property I am planning to buy. I request the members to please go through the document and tell me if this property is worth investing in. Here is the link to the document:
I'm not a big fan of this deal. Paying 200k for something that rents for 1500/month is not even a 1% deal. I also think 500/yr budgeted for repairs is not sufficient. I'd look for better deals unless I'm not following your numbers here.
I'm not a big fan of this deal. Paying 200k for something that rents for 1500/month is not even a 1% deal. I also think 500/yr budgeted for repairs is not sufficient. I'd look for better deals unless I'm not following your numbers here.
@Doug Harmon. Thanks for the reply. This home was bought by the seller, flipped and remodeled with new roof, completely redone and new kitchen with appliances, new HVAC, furnace, water heater, etc. In my estimate I assume I might only have very little maintenance expenses. I am quoting $1500 per month rental based Zillow estimate. I plan on holding the home (rent) for 10 years and may be sell it.
Yeah I hear you but I've seen new homes that require more than 500 a year in maintenance but that's not my biggest concern. If you folllow BP, you'll see most folks are targeting stuff that pays 2% per month of the purchase price. That would mean this would need to rent for 4000 a month to make it a no brainer. That said there is good money lower than that but your rent is not even 1% of the purchase price which makes this a poor deal on the surface. As I dig down, your maintenance number is low in my view and you have very little margin on this deal when you look at your cash flow. Any repair, higher taxes, or longer vacancy and you're cash flow negative. Your ROI is only showing 5% even with your aggressive expense numbers. Heck you can make that on a corporate bond and not have to hassle with renters. To make rentals worth your time, your returns need to be much better. I would not consider this deal but that's me. Just buying a couple of for rent signs and cleaning the carpets when you turn tenets will run you 300 bucks. A single hvac service call is a couple hundred bucks. Heck you can't hardly pay for termite service for 500/yr. I would pass.
As @Doug Harmon said, $500 a year for maintenance and upkeep is way too low...even for a fully rehabbed property. General rule of thumb is about 1% of home value per year for maintenance. But even saying $1500 a year in maintenance and upkeep, then you are looking on a cash on cash ROI of 3.3%. Sure, all depends on the condition of the property, but better to be conservative with the numbers. Not to mention, the cash on cash ROI in this spreadsheet doesn't seem to be accounting for your closing costs or rehab money. So, your denominator for CoCROI for year 1 is $60k, not $50k, so this lowers your return even more. What about saving for Cap Ex? How old is the roof? The HVAC? This also assumes no property management inclusion -- even if you are managing the property yourself you should include something for that line item. What about things like yard maintenance? Does it have an HOA?
Basically, as presented, you are working with razor thin cash flow that, in reality, will become negative due to unaccounted for costs. Even if it doesn't, your realistic ROIs are going to be closer to 3%...might as well invest in an index fund at that point.