Rental deal or no deal

5 Replies

Hello folks

This will be my first deal! Still learning a lot of concepts, ratios, etc. This fits in 1% rule but not 100% confident. Here are the details:

3Bd/ 2 bath SF house in a community close to businesses and malls. Looking to hold for about 5 yrs.

Purchase price - $61,000 (Market value about $82,000)

Initial investment - $4,000 (paint/ repairs/ appliances)

Rent - $825/ month (based on recent comparable rentals)

Taxes/ insurance - $133/ month

Property Mgmt - $82.5/ month

Paying cash and will re-fi in 6 months.

Thanks

Hemant

Will you be paying sewer or water? These bills can result in liens in some cities if not paid. I include Sewer in my cost for that reason.

This property based on a 5.25% 25 year loan will kick off 213/month cash flow with a PM. Its runs a 1.35 DSCR.

This would qualify as a buy for me based on the numbers you gave.

Regardless if your paying cash or not you should analyze the property as if it was leveraged.

Let me know if I can be of more help.

I agree with @Chris Adams . It looks like you have a GOOD deal here. I've analyzed it more conservatively. I've factored in 10% vacancy, 5% for repairs & maintenance and 5% for reserves in addition to taxes, insurance and management. My analyzer tells me a 11% CCR even if you get the financing as what Chris said (you get 8.7% return if cash). With my more conservative analysis, you end up making about $150 a month cashflow if you finance it. Still...not a bad deal and I would also buy it if I were in your situation. Here's a screen shot of my spreadsheet.

@Chris Adams : thanks for the response. Tenant will be paying for sewer, water and utilities.

@Wendell De Guzman : thank you for the spreadsheet calculations. Feel much better now!

@Hemant Bhagwat

Not knowing where the property is located but I believe you can find better numbers.

I am a bit bias and will say have a look in the Midwest just because I buy here lol

In saying that if the above property is situated in a solid B class area and with buying below market it would make it a decent investment.

Thanks for reading and all the best.

I wouldn't buy this place as either a full cash or financed purchase.

I see $825 income against the follow expenses for full cash purchase:

Taxes $66.67

Sewer and Water $-

Trash $-

Heat/Utilities $-

HOA $-

Cap Ex and Ops $150.00 (this is my minimum per roof)

Insurance $66.67

Mgmt Fee $82.50

Vacancy $66.00

Cashflow/month $393.17

Cashflow/year $4,718.00

Cash on Cash Return 6.69% ( I like to see 15% here)

------------

I see $825 income against the follow expenses for finance based purchase. Slightly better % return here.

Mortgage Rate 5.00%

Length of Mortgage in years 30

Monthly Mortgage payment $261.70

Taxes $66.67

Sewer and Water $-

Trash $-

Heat/Utilities $-

HOA $-

Cap Ex and Ops $150.00 (this is my minimum per roof)

Insurance $66.67

Mgmt Fee $82.50

Vacancy $66.00

Total Expenses $693.53

Cashflow/month $131.47

Cashflow/year $1,577.59

Cash on Cash Return 7.25%

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