$16,500 rental - Deal or what?

Question

I'm not good at this rental game as I have one house that I take a loss on already.

But I found this house List priced at 19K then the next day dropped it to 16,5K

This house is currently rented for $350/month.

To me, this sounds like a pretty good find.

The house's market value according to tax records is 26K. I found it hard to find comps in the area but they seem to be in the 30's.

The current tenant does not want to move.
What would you do as a beginer investor in this situation.

Frank Adams · Answer

IMO a $350/month rental does not make a good deal, as Jon already pointed out. Too little REAL MONEY regardless of PERCENTAGES.

What they do make however is excellent seller financed deals for the seller. That price is less than the average car, so no bank is going to touch it. If you can get it and get it debt free QUICKLY (let's face it, any of us can make an extra $20K in a year working a PT job) then you are set to do a "Lonny Deal" on a SFH.

People looking to buy in that range are NOT BANKABLE through traditional means. They're flying so low beneath the radar they likely don't have a checking account. If you offered that house at $40K, 12$ interest, with $2K down, AND NO CREDIT CHECK, you could sell it 20 times the day the ad comes out.

Good luck

all cash

Jon Holdman · Answer

Here's how I see it:

$16,500 purchase price
$110/mo payment (7%, 30 years)
$350/mo rent
$175/mo expenses (based on 50% of rent)
$175/mo NOI
$65/mo cash flow (NOI - payment)

The problem with low value/low rent properties is that things like evictions, tenant screening and advertising aren't any cheaper than for a $1000/mo unit.  Its also tough to get a mortgage on a $16,500 property, so you may have to use some other, more expensive funding.  Mike's "2% rule" works for a $25,000 property that rents for $500. As you go down, you need more like 3% to generate the same $100/mo in cash flow.  At $12,000, this generates $95/mo in cash flow.