How Much Would You Pay for This House?

[Mark S.]

2BR / 1BA house. 1,150 sq ft. 50 yrs old. Heating needs fixed. Plumbing (bathroom needs plumbing hooked up and basement has broken pipe) needs repair. Median rent is $550/month, but I think it'd be closer to $475/month. Area is not the greatest, but there are a lot of children living there, so it shouldn't be too bad (but I personally wouldn't live there). Location is pretty convenient (close to schools, downtown, etc.). Thanks in advance.

[Bill Jacobsen]

My experience is that expenses are higher than 50% of rent for low priced houses or low rent houses. Here is how I estimate maintenance and management.

I estimate yearly maintenance and capital expenses to be $1,000 per dwelling plus $67 per square foot. For your house I would estimate a total of $1,767.

I also assume tenant turn over every two years and that property management of 10% of rent + one month's rent to fill a vacancy. Given $475 per month rent I would estimate $2,810 in expenses. This does not count the tax and insurance cost.

You have to estimate your net operating income and decide how much you are willing to pay for that income.

Good Luck.

Bill