Long time reader, first time poster (I think). But first of all, thank you to everyone in the community. If it weren't for you, I would have never jumped in, and this contract would not exist. So I'd like to share the details and hopefully get some feedback.
This is a 2/1 1300sf SFR.
Purchase price: $47,000. Currently rented for $750/mo.
Financed @ 20% down (using my HELOC) for 20 yrs. @ $285/mo.
Taxes & Ins = 150/mo
Assuming 8.33% vacancy and 10% maintenance = $131/mo
My fancy spreadsheet gives NOI = $5616/yr and CAP RATE @ 12%
My personal calcs show $750-285-150-131 = $184/mo. Note that I think I can probably get $850/mo in rent. And this would probably be a good Section 8 home.
Once again, THANK YOU to BP!!! And please feel free to comment/analyze/tell me how dumb I am ;)
First off congrats for making a move and doing something! My questions are as follows:
Are you happy with the net...If you are it doesn't matter what anyone else thinks as long as you have figured out your net accurately.
Will you manage the property yourself? Even if you are plan for PM which is another 10%. If you grow your business you may want to do that...If so that brings your net down to 110 a month.
If section 8, that tells me maybe not a top neighborhood...Plan for having to make some cleanup/changes during tenants...I am a sub 30 guy...Most of my cleanups are 1-2k...Which would wipe your profits out...Again I said most. For some its replacing carpets, repainting, replacing odd items etc....
Finally, I would not do this deal...Its too much money to me for too little rent. I just bought a home and rehabbed it, have 25k in it and will get 650 a month for it. I have two others that I paid 28k for both and get 750 a month...With that said that's just my opinion.
Good luck whatever you decide to do.
Thanks for the reply!
I was definitely counting on better terms from the bank, but I was a little overzealous and caught a quick reality check. So I'll chalk that up to inexperience...lesson learned.
I do plan to manage the property myself and will probably continue until I get a few more in the portfolio. At some point I imagine it will become too much to handle.
Yes, you are correct about it not being in the best neighborhood, but it is definitely not in the worst!! The current tenant has been in there a while, keeps the place up, and in fact has added her own window a/c units. Besides the central air unit needing to be replaced at some point, the home is in pretty good condition...especially for the price in Houma, LA (notorious for expensive real estate) e.g. my home is a 2/2 @ 1100sf and appraises at $147k.
But on the positive side, rentals don't stay on the market very long...most are taken within a week or two. And I do have some people close to me with section 8 experience. I have been analyzing deals for months ad nauseum and nothing in this area has even come close to these numbers.
All in all, I appreciate the feedback. Maybe will look into a very high security deposit (within reason) to CYA for cleanup!
Oh, I did forget that we expect the appraisal to come in around $85k. So, a little more wiggle room.