SFH Investment?

Question

House is 30K. Needs very little minor work to get it to renting condition. I feel I can get 525 a month for it. Should I go for it?

Expenses should be about 45%. But I budget for 50% just in case. If my calc's are correct, should be right at 100 a month cash flow.

Tom C · Answer

If there is really little rehab, you are still looking at around 35K into it. With numbers this tight, you need to look at all the factors instead of using the 50% rule. What are your taxes? Insurance will run you around 400 bucks a year. You can figure a higher interest rate, because the amount is less then 50K. So you can assume 8%. If you can get a 30 year, you are looking at 290 a month payment without including taxes and everything else.. Unless your AFV is above 65K, I would move on or offer 20K.

Michael Barger · Answer

Thanks I didnt take that into consideration. Appreciate it.

Jon Holdman · Answer

Yes, because many of the fees, and the interest are a percentage of the loan amount.  A small loan means a small profit.  Yet, much of the work is about the same.  At best, you're closing costs will be a higher percentage.  An appraisal, for example, is $350 whether its a $30K house or a $300K house.  If your credit's good, and you have steady, documented income, you should be able to find a lender.  But, expect many to say "$50K minimum".

Jon Holdman · Answer

I can't get your number.  I'm assuming $3000 for the "minor work" and closing costs.  Payment on that at 7% for 30 years is $220.  I assume you've found a lender that will do a small loan like that.

$525 less 50% leaves NOI of $262.  Less the $220 gets $42/month.  At 45% for expenses cash flow is $69.  A little low, unless there are some other factors that make it attractive.

Michael Barger · Answer

Is it harder to get a small loan? I have good credit, I assumed it wouldnt me  much of a problem.