Accountant · Fox Valley, WI · Member since 2008 · 1 post · 0 votes
I LOVE real estate and want to become a landlord/real estate investor. HEre's the scoop on my latest first one to dive into:
Small SFR asking $39k but I think I could get it for less ($35k) for worst case scenario let's assume even $40k. I can easily put 25% down ($10k). It is in ready to rent condition - immediate occupancy, but personally I would fix up a couple of minor issues in the place....
I'm going to assume I can get rent of $500/month (currently not rented but units close by/surrounding which are duplexes are going for $450).
Taxes: $100/mo
Insurance $22/mo
Am I missing anything? Per my calcs I think I can cash flow immediately (after getting a renter of course) but am not sure how else to know what to set rent at? Is there a calc for that?? Its all residential and any rentals around there are all upper/lower duplexes, not necessarily a full SFH with basement, etc...
Thanks For ANY info!!!! LOVE THIS WEBSITE - I'm learning TONS!
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
18y
Antowar,
You are missing a BUNCH of the expenses; such as vacancy, management, maintenance, advertising, utilities paid by landlord (at least during vacancies), legal fees, evictions, capital expenses, etc, etc, etc. In the United States, operating expenses typically run about 45% to 50% of the gross rents. To be conservative, let's assume 50%. Therefore, if the rent is $500 per month, $250 of that is used to pay the operating expenses, leaving $250 for debt payment. Let's assume a mortgage payment ($40K, 30 yr, 7%) of $266, and you'd be losing $16 per month on this rental. I counted the entire $40K as debt because there is an opportunity cost to your downpayment money. Personally, I like to have a $100 per month positive cash flow.
In my opinion, this is not a good deal and it should be purchased at a much lower price.
Rents are set by the market, not the landlord. To determine what rent you should charge, you need to determine what similar units in your area are renting for. That's easy to determine by looking at the classified ads in your local newspaper or talking to other successful landlords in your area.
Finally, your insurance cost of $22 per month looks suspiciously low to me. Is that homeowners insurance or landlord insurance. You need landlord insurance.