Small SFH Opinions - You buy off these numbers?

5 Replies

I am just curious if anyone else thinks these numbers are good. It's a 2/1 SFR 648 SQFT, .4 acre lot that backs up to elementary school. Interior & Exterior are fine. Siding. Taxes are $243 per year.

Purchase Price - $26,000 

Mortgage - 0

Repairs - $1,000 (Its clean and well kept)

Total Cash Outlay - $27,000

Gross Rent - $540 (Rentometer.com says $590)

50% Rule - $270

NOI - $270

COCR - 1% Per Month

What do you guys?

It could be good, but I'd project out the expenses more precisely. The 50% "rule" is a rule of thumb.

On a smaller house, you may find expenses are more than 50% because certain costs do not scale down below a minimum (water heaters, HVAC, service calls, appliances, etc.)

First, the 50% rule is a basic estimate.  Before buying you need to estimate each element that makes up the expenses.  2nd, I find it more difficult to stay within 50% on lower rent houses.  It seems much easier if the rent is $1,000 per month.

The last point is that I seldom find a property that doesn't need some rehab before I rent it.

Good Luck.

Bill

Originally posted by @Paul C.:

It could be good, but I'd project out the expenses more precisely. The 50% "rule" is a rule of thumb.

On a smaller house, you may find expenses are more than 50% because certain costs do not scale down below a minimum (water heaters, HVAC, service calls, appliances, etc.)

 Of course, I have not dove into my due diligence yet, this is just preliminary numbers. I think that so far the numbers warrant further pursuit. I will schedule a complete walk through and break down any cost I foresee.  

Even if I increase my expense ratio to 60% and increase my rent ready repair work to $2,000. I would still be sitting at a .77% ROI per month.

One more suggestion I have is to balance percentage return with absolute dollar return. A high percentage return sounds good, but if the denominator is small, make sure it's worth your time and effort.

I'd rather have a 7% return on a 100k property than a 10% return on a 25k property.

I can pay cash for the 25k but not the 100k, in starting out, wouldn't that be a better route to launch from?

thanks Paul!

-Jonathan

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