Single family- does this work?

Question

Good afternoon BP community!  Slightly new to the real estate investing game with 1 single family property and looking to invest in a second.  Here are the #'s, is this a good deal?

Price- $92,000

20% down ($18,500)  - 30 year 5% estimate

Estimated rent $1,250

Monthly $550

HOA $158

Any insights would be greatly appreciated!

Sean

Bill Jacobsen · Answer

First, I like to make 3 percentage points above my cost of money.  You have estimated your cost at 5%.  That means that I want a cap rate of at least 8%.

You state the price to be $92,000 + 4,500 in closing costs or $96,500.  To achieve 8% you must have net operating income of $7,720.  You stated gross rents at $15,000.  Your expenses must be $7,280 or lower.

You must estimate your expenses.  Here is my take on it:

Tax     $1,800

Ins.          800

HOA     2,364

Mgt       1,425

Vac         750

Maint   2,000

These expenses = $9,139

HOA may take care of some insurance or maintenance.  I use a management number even if I am planning on managing myself to be able to look at the property as strickly  an investment.  The maintenance number includes capital expenses.  The costs accululate eventhough there may be no cash costs in the first years.

My estimate of value is $73,262.  Do your own estimate of expenses to determine your value.

Good Luck.

Bill

Engelo Rumora · Answer

@Sean Delaney

Hi Sean,

There are many B class markets across Ohio that offer $700 - $900 monthly rents with a $40,000 - $50,000 purchase showing around a 15% net cap. You can also get better figures if you do the work yourself.

Thanks and have a great day.

Sean Delaney · Answer

I could use a little more advise on ideal cap rate- I'm shooting for 15%+

Other fees-

HOA- $197

Estimated clothing costs- $4,500

I will be managing the property

Taxes $1,800

Everything has been updated so no renovations for the first couple years

Britt Abbey · Answer

What do you know about the expenses? Closing costs? Vacancy rate? Are you managing the property yourself? Are there any needed repairs? Taxes? HOA Fees? Insurance.

Assuming the 50% rule to realistic, you're looking at $625/month in expenses outside of your mortgage payment (principal and interest only).  $395 will now go to P&I, so you might cashflow $200/month.

Ben Wuollet · Answer

What CAP Rate are you looking to acheive?