First opportunity is scary

14 Replies

Hi, all. I have been saving and looking for my first rental. I found one that has me excited and scared. Asking price... $5250. Yes, $5250. Maybe because its in a bad part of town or maybe because it needs some work - I am handy but have a full time job. The rent comps that I can find (there aren't many) show rent at $500-$600/month. So does the zillow rent zestimate and rentometer.com. The issue is its only for owner occupants at the moment. On August 11th it will be available to investors. 

I can post the zillow link if you like. I did a drive by and walk around. It looks like it just needs to be mowed and cleaned up. Haven't been in yet

My initial questions are:

What would be your personal concerns about this property and what would you look for?

What is your experience with tenants in low income housing?

It is legal/wise to post a preliminary ad such as: "2bed 1bath for rent in XX neighborhood - $550/month"? Just to get some feedback.

I really want to feel comfortable with the purchase. I don't want to crush my dreams with a trouble property :). I just simply don't know how to spot one. 

Taylor

I assume it is probably a HUD property/foreclosure, since it is only available to owner occupants at the moment.

Don't put too much work or effort into it until after August 11th. With HUD it is definitely timing and a numbers' game. There is a whole strategy to it (I will write a blog post about it, you just gave me the idea :)

It is definitely more challenging dealing with tenants in low income housing. Usually it is better to rely on Sec.8 rental subsidy. I personally have either rented houses and apartments in low income areas preferably to Sec.8 voucher tenants or owner financed them with Contracts for Deeds (the tenant/buyer has more interest at heart, since he is more of an homeowner than a tenant.)

Yes, you could put a blind ad like what you stated to see what kind of feedback you get first.

Good luck! Don't be scared, analyze the numbers carefully, use some due diligence and go for it!

Medium logo on whiteLaura Alamery MBA, Laura Alamery | [email protected] | 3143019594 | https://www.lauraalamery.com/

@Taylor Reichert  

Welcome to BP!!

It looks like you've found a good starting point for a buy and hold property.  

Possible renovations can kill a deal like this quickly.  You obviously need to get inside and see what horrors, or not, the interior reveals.  

I would find out exactly how much the following expense are going to cost you each month. "The tenant pays" is a good answer as well. Put those numbers up here and I'll tell you what I would pay for the place.

Taxes

Sewer and Water

Trash

Heat/Utilities

HOA

Cap Ex and Ops (my personal minimum is $150/roof/month)

Insurance

Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)

Vacancy- as a %. (8% represents 1 vacant month/unit/year)

Thanks for the reply! Can't wait to read the post.

Aaron, I will. I'm headed to work but will take some free time to gather the data and get back with you.

@Aaron Montague

Taxes for 2013: 

State/County: $133.23

Municipal: $220.93 (should be sewer, water and trash)

Separate School Dist: $250.13 (don't know what this is)

Total Taxes: $604.29/yr

Heating/Utilities: Tenant Pays

HOA: NONE

Cap Ex and Ops: Not aware of what this is :-P

Insurance: Quick guess is about $100/mnth

Management Fee: $60/mnth

Vacancy: 16%/yr

Thanks, I this is my first time putting those numbers together. I hope I have been thorough  enough. If it makes a difference the "true" tax value according to the Real Property Billing Roll is $23,170.

Thank You,

Taylor

Travel to the neighborhood, if you were a person comfortable with the neighborhood, would you rent the house?

@Seth Sherman

I did drive by and walk around. I like the property that's why I'm interested. I didn't feel threatened and the neighborhood seems pleasant. But the area has a bad rep. It's just a poor area with bad schools.

How important is it to rent out a house I would rent? I was raised in this neighborhood as a kid but moved out when the area went sour. Someone has to live here. Do I have to share their standard?

Does anyone know where you can get accurate crime reports?

Listen to podcast #79 for a perspective.

It's not important to be willing to live in your properties. 

I'd focus less on verifying market rent and more on talking to neighbors and getting inside  with someone who can help you assess rehab costs.

if this is viable it will go fast when the restriction passes. Get poised to be first in line if you want it.

@Taylor Reichert  

I would not buy this place, because I cannot come up with a way to get to my minimum investment criteria: 15% Cash on Cash AND $150/month cash flow.

I might recommend buying this place if all you have to do is mow the lawn and wash the counters.  If you can get into the place for $8500 or less, you'll make 15% Cash on Cash return.

Here are the numbers as I see them and several questions:

Taxes $50.17

Sewer and Water $- (I can't imagine that your taxes cover sewer and water.  I would triple check this number with the municipality)

Trash $-

Heat/Utilities $-

HOA $-

Cap Ex and Ops $150.00 (This is my minimum per month per roof.  You'll have to replace water heaters, roofs and furnaces.  These are extremely cash intensive endeavors when the finally come due.  Put this money aside each month for the eventuality that something important and expensive breaks.)

Insurance $100.00 (This number seems high for a house worth $23k.  I'm guessing this is only going to be $60/month or so.  If that is true, this looks like an even better deal.)

Mgmt Fee $55.00 (Are you self managing?  Account for this anyway.  Just pay yourself or put this in your Cap Ex fund)

Vacancy $88.00 (16%?  Where did you get that number?)

Total Expenses $443.17

Total Revenue $550.00

Cashflow/month $106.83

Cashflow/year $1,282.00

Cash on Cash Return 15.17%

@Taylor Reichert
I like the idea of putting section 8 or selling it with owner financing. You can look up the section 8 rent amount at gosection8.com

I'm looking at a house with a $13k asking price and had some of the same questions. Glad you posted!

@Taylor Reichert  ..View interior and get a better idea of what it cost for repairs..If you can do most of the repairs this might be a great place to start..Keep repairs and purchase to 10K...Add a few inexpensive bells and whistles..ceiling fans, tile bath/kitchen..ACV for insurance as opposed to replacement cost for insurance is much cheaper...Rent it for $550...If it's nice you can rent it...Quality rentals at affordable prices are in demand!..Screen, Screen, Screen.....Good luck!

You should go take a look inside. If you know anyone with rehab experience, take them with you. That way you'll be able to know what you'd be in for. If it really is a great deal then you want to put your offer in as soon as the owner occupant bid period is up.

Cheap doesn't always equal a good deal (but sometimes it does!) Can you let us know more about the comps in the area, both for sale and rent?

Medium team zen logo vJean Bolger, 33 Zen Lane | http://www.solidrealestateadvice.com

Good Job @Taylor Reichert  

Get prepared to go inside the property don't get to nervous about what you see..LOL!!!

and I would look to do section 8 in the property... There is nothing like the feeling of guaranteed income each month but it's not that easy because you are going to have to make visits or have your property manager make visits over to the property is kept up well. Sometimes they can be a little rough on properties NOT all the time!!!

Good Luck

Medium new logo for bigger pockets..Derrick Craig, Memphis Buy and Hold | [email protected] | 901‑212‑4476 | http://www.memphisbuyandhold.com

So I called the city municipal and confirmed that water, sewer and trash are all together. I got a very different quote that the tax record showed. I was told previous residents have paid anywhere from $165-$211 bi-monthly(990-1266/yr)with $41.62 of that being trash. She told me they were going to change it to monthly soon. That seems odd.