Richardson, TX · Member since 2015 · 10 posts · 2 votes
Hi
I am planning to submit an offer on a rental property in B/C area in a small city close to Dallas Metroplex. Below are the details and can you please advice me, if this is something worth pursuing.
Sale price : $210k (Duplex built in 2005 and 2 open lots of 6000 sqft next to the Duplex)
Rents : $2000/month (each duplex unit rents for $1000/month) : $24000/year. Tenants pay all utilities
Maintenance (10%) : $2400
Property management (10%) : $2400
Vacancy (10%) : $2400
Taxes & Insurance: $8000
Down payment (25%) and rest conventional financing.
Rents can be increased by ~10%. There is little cash flow after mortgage payments. The two open lots will allow to built two more SFH/Duplex units. Until I decide to built on these lots, the rents from Duplex should be able to sustain it.
Cary, NC · Member since 2015 · 99 posts · 38 votes
10y
IMO, this is not a viable income property. I ran your numbers through a basic spreadsheet. Your property insurance and taxes on their own account for 34% of your gross income. In total, your expenses not including the mortgage amount to 68% of your gross income which includes 5% for Capital Reserves which are not mentioned.
I ran your mortgage at 30 years, 4.25%, 25% down, financing only the purchase price, your mortgage payment should only be $774.81.
Even using these figures, you have a negative cash flow of $141 PER MONTH. Even with a 10% increase in rents, you are looking at a NEGATIVE cash flow. Your cap rate is only 4.1% when you factor in the repairs.
If a property cannot cash flow from the start, I do not advise a purchase. Even if you build on the additional lot, usually new construction does not create a good rental cash flow.
Rental Property Investor · Dallas, TX · Member since 2015 · 29 posts · 10 votes
10y
Hi Rick,
I think you have a good deal from what you told us. You mentioned replacing carpet to tile. I would recommend you put tiles in the wet areas (kitchen and breakfast area) and engineered wood in the other living areas. You will rent faster and/or get more rent money than if you had tiles all throughout the house.
You should also think about saving your property management money and get home warranty for $475 per house (or less) per year. The key to successful renting is to maintain your rental homes in top condition before you rent them and attract good tenants who will take care of your house like it was theirs. Every time a tenant goes out, go through the house and replace/repair the house so you wouldn't mind living there. Also, when people apply for your house, don't just accept the first family that apply. Be picky, choose wisely.
Most of my investor clients initially ask me to manage their rentals. But if you follow my recommendations above, the tenants will only contact you may be 0 - 2 times a year. When the tenants need something, you call the warranty company, and they send someone that's qualified. They charge $75 per call and this includes parts and labor. The warranty does not cover everything and so sometimes you may have to ask someone for a repair man with skills that is not covered in the warranty but if you do the math, you will save more money this way. I have several rentals and my tenants rarely call me.
Richardson, TX · Member since 2015 · 10 posts · 2 votes
10y
Thank you George
Some more info - the 2 lots market value is $15000 and this compensates for the repairs
Sale price: $210k
Years Rents = $24k/yr
Expenses + vacancy (from above) : $15k
Mortgage (30yr at 4.25%) : $1100/month = $10k/yr
Cash Flow : $24k - $25k = -$1K
The only way there can be positive cash flow is if I raise rents by 10% and the cash flow will be $1400/yr. The upside is if I build SFH/Duplex in the two lots.
Does anyone know per sqft cost on building a new SFH/Duplex mainly for rentals in North Dallas area? I am hearing > $85/sqft from few sources and this makes it hard to build any new rental homes.
Cary, NC · Member since 2015 · 99 posts · 38 votes
10y
IMO, this is not a viable income property. I ran your numbers through a basic spreadsheet. Your property insurance and taxes on their own account for 34% of your gross income. In total, your expenses not including the mortgage amount to 68% of your gross income which includes 5% for Capital Reserves which are not mentioned.
I ran your mortgage at 30 years, 4.25%, 25% down, financing only the purchase price, your mortgage payment should only be $774.81.
Even using these figures, you have a negative cash flow of $141 PER MONTH. Even with a 10% increase in rents, you are looking at a NEGATIVE cash flow. Your cap rate is only 4.1% when you factor in the repairs.
If a property cannot cash flow from the start, I do not advise a purchase. Even if you build on the additional lot, usually new construction does not create a good rental cash flow.