Would you take 13% CoC for a rental?

5 Replies

Putting an offer on a SFH, 3/1 ranch style in a decent neighborhood. 80k purchase. Rentometer and CL put rents around 900-950. CoC is 13%. Would you take it?

With my normal assumptions for expenses and financing I get an 8% cash on cash for a $80K property with $900 in rent.  Bumps up to 17% if it was local and I was self managing and not counting anything for my time.  So, if that were a property close to me I would go for it.  At a distance where a PM is required, I'd look for something better.

I use J Scotts rental analysis spreadsheet.  So I accounted for debt servicing and expenses and it shot back 13%.  I put the vacany rate at 10% though I don't expect it to be that high.  And I'll be managing it myself.  The way I look at it, 13 is a better yield that I can expect anywhere else right now.  Hopefully it won't be a huge headache with renters.  

If I use $925 for rent and the 50% rule I get a cap rate of 6.9%.  Since I want 3 percentage points above my cost of money  I would need a loan at 3.9%.

You are also assuming that there is no fix up costs.  It is rare that I find a house that is empty but in rent ready condition.

Good Luck.

Bill

Adam what year was this property built?? How far away do you live from the property?? Even if you will self manage you build in that cost because one day you might want a PM. If you do not factor it in now when you buy you will overpay for the property.

A 3/1 is not as desirable for rent or resale as a 3/2. Is there a way you can cheaply add a second bathroom?? Are all houses on the street 3/1's or are there some 3/2's?? What do those rent for in difference if any and what is resale vale??

Recheck your numbers as this is barely above the 1% rule in rents. I think you need to really look at your analysis numbers and see what you are missing to arrive at the 13% coc.

I get around 12 to 14% coc for my clients with retail strip centers but capital investment needed is high as these sell for 2 million and up in commercial.  

It's a typical 3/1 ranch, very common around here.  Built in 1980, foreclosed on last year and the bank made it move in ready.  All I have to do is clean it up a little.  Adding another bath really isn't doable.  Would have to do an addition, jacking up my cost.  There may be a few 3/2s but most are like this one.  These are right outside Richmond Va, prime commuting distance and a good neighborhood.  I redid the numbers and here's what I'm looking at.  

Using the 50% rule, if rent is 900, 450 is taken for expenses.  Mortgage is ~320, which leaved me a little over 100 per month cash flow.  So the numbers work, but they're a bit tight.  If I can purchase it at 70 to 75k max it may work.  But 80 is too high.

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