I am new to this forum. This is my first ever rental buy, but I plan to do more in the future.
I wanted to run this by you guys and see what you think.
I am looking at a townhouse in Cy-Fair area in Houston, TX.
Buying price: $108500 Listing price: $115000
Sq Ft: 1417
I am paying cash for the purchase.
Expected rent: $1200 to $1300
Property tax: $230
Repairs: $130 (10%)
Property management: $130 (10%)
Vacancy: $130 (10%)
Total expenses: $870/month
Cash flow: $470 to $570
The inspection report was good. It mentioned that one of the pipes leading up to the water heater was corroded and needed replacing. Everything else came out fine.
Do my assumptions look okay or am I missing something, considering that this is a townhome?
I prefer to stay away form townhouses and condos mainly due to HOAs.
It doesn't look like you included the leasing fee in your calculations. Unless you're planning to lease it yourself (I don't recommend it) you'll have a pay a leasing fee whenever the townhouse is leased to a new tenant. In Houston that can run from 75% to 100% of the first month's rent.
Using your calculations, in a year where there was no leasing activity, your net income after expenses would be between $5640 and $6840, which would be a yearly return on your initial investment of between 5.2% and 6.3%.
But in a year where the townhouse is leased to a new tenant, your net income will drop to between $4400 and $5540, which is a yearly return of between 4.1% and 5.1%.
Obviously the leasing fee is a variable which may go several years before you have to pay it if you have a good tenant in the townhouse. But it's a cost that I would at least consider when looking at an investment rental property.
And it also shows the importance of keeping tenants happy and keeping them in the property. Vacancies and the resulting expenses are cash killers.
@Fred.........I didn't know that leasing would cost me that much. My real estate agent who is helping me buy this townhome (closing on 1/7/15) said that he would list it for renting after closing for free. Does that mean that I won't be paying this leasing fee, or is that separate?
Hi @Bharath Raj ,
Our company and our clients tend to stay away from townhouse for many reasons, one being that townhouse don't appreciate as much as single family homes. I am seeing SFH in Cypress for 100k and that are renting for $1,400. Again if I had the choice to but a SFH or a townhouse for 100k I would pick the house all day.
Hope it helps.
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!