What makes this a good deal?

Question

Aref Shehadeh · Answer

Like Kevin mentioned. If you're interested in what you may be able to charge the tenant, evaluate the market rate for a comparable unit. You can do this by using sites like rentometer, looking up what rents are going for on craigslist, and even finding properties that are similar to the one you're evaluating and talking to the current owner. I've cold called property owners similar to ones I have been evaluating and you'd be surprised how helpful they can be.

Keep in mind, though- the income that unit brings in is just one factor of many to determine if it is a good deal. First figure out your goal with this property. For example -Are you trying to have the rental income pay off your expenses? If so- create a conservative proforma detailing your debt service(interest+principal) payments, expenses, and vacancy allocation (budget a month you will have no tenant and thus no income). Armed with this data, you will know the minimum you must cover each month. If the market rates for your unit is at or above it, you should be in good shape.

Of course, your due diligence should extend to figuring out if there is any deferred maintenance required, potential problems with the property, and more. This will help in buying the property at a fair price. I tend to over-analyze, but it allows me to use data over intuition for my purchasing decisions and it is a powerful negotiation tool.

Kevin Harrison · Answer

What you charge your tenant has nothing to do with "making it a good deal". it either is or is not a good deal, but rents are determined on the Fair Market Value of what you are renting in your area.

For example you can say "rent is $2000 for this 3 bed 2 bath" and that might be true in DC or other major city but if you live in augusta Ga people are just going to laugh at you.

You need to look at what the market rents are and determine how much you will receive in rent every month VS how much the mortgage is going to cost along with other expenses.

Steve Vaughan · Answer

Hi @Rachelle Ford- in general the market will set the rent rate.  I would at least need .5%/mo in my area for the deal to work.  In other words, if both sides were rented at a price of $100k,  it would need to bring in $1000/mo.  That's for my area with my tax rates and utility rates.

Ask what it is currently rented for.  If $500 or more each, you will be in the ballpark of penciling out, but get a clear picture on expenses, condition of the property, neighborhood, etc.  Good luck!