Deal or No Deal
I’m in the process of considering buying 2bed/1bath home 1200 square feet home. The owner will sell the home at 90k As Is. 90K is a fair price maybe a bit below market. The home will probably rent for at most 900 a month. The sell will also do owner financing at 6.5 percent. I have done the inspection. The home will need a new sewer line soon (about 7-8k). The home will also need termite treatment and new circuit breaker box. I’m pretty torn, whether to move forward with this deal or not. This will be my 2nd investment home. Any advice would be great.
Quote from @Tony Bui:
I’m in the process of considering buying 2bed/1bath home 1200 square feet home. The owner will sell the home at 90k As Is. 90K is a fair price maybe a bit below market. The home will probably rent for at most 900 a month. The sell will also do owner financing at 6.5 percent. I have done the inspection. The home will need a new sewer line soon (about 7-8k). The home will also need termite treatment and new circuit breaker box. I’m pretty torn, whether to move forward with this deal or not. This will be my 2nd investment home. Any advice would be great.
Without knowing the down payment it makes calculating numbers a little tough. With 20% down ($18,000) your P&I would be $455. Let's say taxes are $100 a month and Insurance is $125 a month (totally guessing but using numbers that would be for my area). Then throw on a maintenance reserve of $100 / month and a little more for Capex... say $50 and you are at $830 / month in expenses & reserves. If this is only going to rent at $900, it doesn't sound like a good deal to me... especially if it needs immediate capital repairs as well. That $10,000 in repairs eats up your profit for 11.9 years! (lol!) if you applied it against it. Or alternatively you could look at the property costing you $100,000 if you put the immediate Capex in the purchase column. But regardless... if my T&I numbers are anywhere close, $70/month really stinks. Imagine if ANYTHING else major goes out... an AC unit (like the one I had to pay $5,500 for today) or you need a roof? You are just going to be losing money for a long time with little to no upside in the near future if you consider real estate is likely going to decline in value in the near future after just running up?
My personal line in the sand is about $300/month in clear profit after all expenses (including reserves). For me this would be a pass unless my numbers are way off and you are coming much closer to that $300.
With that said though, I question whether your rental income is off? Looking at Zillow rentals I'm seeing at around $0.90 - $1/sf in rental income in the Wichita area. If that panned out, and you rental income was more like $1150 / month then that might be enough to change my mind. I can tell you that I am often surprised when I list a house for a higher rent than I think it will get, and the applications come rolling in. So MAYBE this one could work if you think your rent numbers are low?
All the best!
Randy
Quote from @Randall Alan:
Quote from @Tony Bui:
I’m in the process of considering buying 2bed/1bath home 1200 square feet home. The owner will sell the home at 90k As Is. 90K is a fair price maybe a bit below market. The home will probably rent for at most 900 a month. The sell will also do owner financing at 6.5 percent. I have done the inspection. The home will need a new sewer line soon (about 7-8k). The home will also need termite treatment and new circuit breaker box. I’m pretty torn, whether to move forward with this deal or not. This will be my 2nd investment home. Any advice would be great.
Without knowing the down payment it makes calculating numbers a little tough. With 20% down ($18,000) your P&I would be $455. Let's say taxes are $100 a month and Insurance is $125 a month (totally guessing but using numbers that would be for my area). Then throw on a maintenance reserve of $100 / month and a little more for Capex... say $50 and you are at $830 / month in expenses & reserves. If this is only going to rent at $900, it doesn't sound like a good deal to me... especially if it needs immediate capital repairs as well. That $10,000 in repairs eats up your profit for 11.9 years! (lol!) if you applied it against it. Or alternatively you could look at the property costing you $100,000 if you put the immediate Capex in the purchase column. But regardless... if my T&I numbers are anywhere close, $70/month really stinks. Imagine if ANYTHING else major goes out... an AC unit (like the one I had to pay $5,500 for today) or you need a roof? You are just going to be losing money for a long time with little to no upside in the near future if you consider real estate is likely going to decline in value in the near future after just running up?
My personal line in the sand is about $300/month in clear profit after all expenses (including reserves). For me this would be a pass unless my numbers are way off and you are coming much closer to that $300.
With that said though, I question whether your rental income is off? Looking at Zillow rentals I'm seeing at around $0.90 - $1/sf in rental income in the Wichita area. If that panned out, and you rental income was more like $1150 / month then that might be enough to change my mind. I can tell you that I am often surprised when I list a house for a higher rent than I think it will get, and the applications come rolling in. So MAYBE this one could work if you think your rent numbers are low?
All the best!
Randy
Thank You Randy for your thoughtful respond. I really appreciated your insight.
I was going to put about 20% down on this home and the $900 a month rent is the max I get out of it.