Is this a good deal?

Question

I have an option to buy a home that is 205k and can rent for $1,600, but could possibly sell for 235k-245k. I want to make this a rental property. However, it does not meet the 1% rule, and the only way to make the numbers work is with a 20-30% down with a 30 year conventional loan. Is this a deal worth it?

Chris

Joe Villeneuve · Answer

The 1% rule should be found only on milk cartons.

Matthew Crivelli · Answer

As long as the taxes and insurance aren't out of control you should be able to cash flow at least a few hundred per month. You have to ask yourself if you are in position to lock up 45k + for an extended period of time to see solid returns on your initial investment. This doesn't sound like a make a quick buck type of situation, it's park your money and wait type deal.

Tyler DeVerse · Answer

I have yet to see a property that meets the 1% rule in San Antonio (Rent ready) yet I am still getting cashflow on my unit and on the ones I have analyzed.  Create a spreadsheet or use BP calculators to get your real numbers and dont dismiss a property that has a .8% rent to price ratio, I cashflow at that ratio after all expenses and putting money away for the rainy days.

Rick Pozos · Answer

On a 200k house as an investment, you need to put 20% down(at least).

That leaves a 160k mortgage. The payment should be about 850 with a 5% interest rate. Add in taxes and insurance and you should be at about 1300 per month. How does 1600 not work??

1% rule is pretty much something of the past for San Antonio.

BUT Pleasanton is kinda different than SA.

Eliott Elias · Answer

The 1% rule is a outdated metric to analyze property in my opinion. Does the 1% rule matter if you buy with equity or if your home appreciates 8% a year? You can find 1% all day, they may not be the best assets or neighborhoods.

Joe Villeneuve · Answer

Nice numbers.  Where did you pull those out of?  From what I've read here, the only "Actual" numbers given were the rent ($1600), and the Purchase Price ($205).  20% DP, at 5% interest for 30 years = $850 PMT is a logical conclusion.  However, where did you come up with the guesses for taxes and insurance?  I know you're from that area, but how accurate are those two numbers?

Even if those numbers are dead accurate, with the projected CF of only $3600/year, it will take over 11 years before the DP (cost to the REI) can be recovered (assuming nothing else comes out of pocket, like vacancy cost, rehab, etc...during that time period).  That means no profit until at least year 12.  That's a long, long time for that to happen.

Bryan Martin · Answer

Not sure about the appreciation in the town, but sounds like a solid single at a minimum (in baseball terms).  Cash Flow on the property isn't going to make you rich, but it could have a place in your portfolio.

Drew Sygit · Answer

Why not use the BP calculators?

Vincent R. · Answer

Nice post, breaking down the numbers! Make sure you remember that $300 is not pure spending money. It should be stashed for future maintenance/vacancies. I'm not familiar with construction/labor costs in the area, but I'd assume, if the quoted numbers are fairly accurate, that this is more of a "break even" deal. Hired property management might even end up a tiny bit negative.

Higher rent prices in the future may eventually put money in your pocket. POSSIBLY*!!

My two purchases are very similar. I'm accepting the loan pay down and tax benefits as wins. Cash flow... hopefully I keep rents slightly below market, tenants take care of the properties and stay, and expenses stay low. A lot of "ifs", so I'm not banking on he houses buying me the latest smartphone.

However... if you have money coming in that you can pour into a 2nd and 3rd and 4th, 5th, etc deal in the next 15 years... you will have built generational wealth and your family will be blessed with options!

Overall, not a home run (unless appreciation blesses you). But sometimes all we need is a bunt to get on base.

Is this a good deal?

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