Potential Rental Property Analysis

6 Replies

I submitted an offer on a property in the low 60's; it is a short sale and the listing agent came back and said the bank has approved a sale price between 76-90k.  So 76k is the bottom line I guess.  She said they have had multiple offers in the 60's already, so I am guessing other investors see the value in the property and my initial offer was good.  The property is in a B area, with C schools, its 3 bed 1.5 bath, 1200 sqft, 2 story, garage, no basement, it is in need of some moderate rehab (exterior wood repair, garage door, flooring, paint, bathroom tile, roof sooner than later, etc)

If I were to buy at 76k that drops my ROI by about 4% a year. Here are what the numbers look like at 76k:

Purchase Price: $76,000

20% Down Payment: $15,200 

Closing costs: $4,000 (estimate)

Rehab Costs: $11,500 (could be less)

Mortgage Payment: $300

Gross Monthly Rent: $1250 

Cash Flow: $325 (using 50% rule).

ROI: (325*12) / (15,200+4000+11,500) = 12.7%

Zillow says the property is worth 130k, I am getting comps pulled as well.

Just wanted to get some opinions on this, its getting harder and harder to find deals out there that are in good areas.  It would also be nice to lock in some low interest debt before rates inevitably rise.  

Wondering if I just have to bite the bullet and pay more or keep hunting.  Thanks for your time.

I would advise you not to offer 76k...Offer something random like 76,326 or something off the wall...Everyone else is going to offer 76k and you need to beat them.  Someone will bid 76,001, and someone else will bid 76,105 if they are smart...

I would pay no attention to Zillow by the way...Get your own comps.  

Well the property has been listed for 3 months now, I am guessing I am not the first person the listing agent has given this information to.  No one has offered the minimum amount yet which is why the property is still sitting. 

And yes, I am getting comps tonight.

Nick, good luck with this deal. Just to correct you a bit. What you just calculated is Cash on Cash Return (CoC), not ROI. In order to calculate ROI you should assume the holding period, calculate appreciation and accrued equity and involve Tax consequences. I think that ROI is way better measurement and underwriting technique.

Good luck. 

The property comps at around 120k. I will use that to determine ROI in terms of equity and appreciation. Thanks for the reply.

So with a 120k valuation on the property, what do you think of the deal?

What city?  Frame?  Bungalow? Basement? Sounds pretty decent to me.  

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