Possible Rental?

Question

I am trying to help my mom purchase some rental properties. We have wholesaled and flipped houses but never purchased homes for rentals. Trying to figure out if this is a good opportunity, looking for some input.

The Number:

ARV 135,000$13,500 Price to take overRents $13503.5% Interested Wells Fargo22 years left on the loanLoan balance $152,000Yearly Taxes $4057.00 or $338.00 per month

Built in 2008 House is in excellent condition

Thanks,

Bil Casimir · Answer

ARV: $195KRental: $1850/monthRehab: (Carpet, Granite updates in Kitchen and bathroom, fixtures, and landscaping) $22,000Cash to take over loan: $23K+ClosingInterest rate: 4.625%Unpaid Balance: $142KPITI: $1650 approxPrincipal: $258Interest: $538Escrow: $850Maturity Date: 08/2040

Looks like 23,000 plus closing fees, plus 22,000 rehab, I would be out $45,000 approximately, no way someone going to give me $45,000 down to owner finance.

Rachel Pervis · Answer

Hi @Bil Casimir even though the numbers suck on this property doesn't mean that finding a good rental is out of the question.  It's always good to have other options when investing in real estate and investing in rentals just may be another option. So keep looking and don't rush into anything and if you find something else just run the numbers by the BP community again.

Bil Casimir · Answer

Appreciate it guys, Going to stick with what I am good at, wholesale and fix and flip!

Thanks,

Santos Collantes · Answer

Great info fellas And Bill thanks for posting.

It's awesome  to see people helping each other!

Keep looking Bill I'm sure you will find something. Gotta crunch those numbers.

Joshua D. · Answer

@Bil Casimir

When buying Real estate you want to know that you made money the day that you bought it. This house would put you in the hole for years... even if you make money each month.

I am sure there are some owner finace people that could make money with this deal but because of the negative equity it is VERY risky.  1 in 10 of these deals will go bad in the first few years... if you own 10 of them, that is no big deal (i assume like the guys you are talking about) but if this is your first and only deal, this thing could sink and come back and bit you in the butt... If i was you I would not walk away from this deal, I would RUN.

Bil Casimir · Answer

Doug, that was great information, I appreciate it!

Doug McLeod · Answer

@Bil Casimir

My mortgage calculator suggests the P&I on that loan (based on info given) would be about $826 - plus your taxes at $338 is $1164.  Lets say you can get insurance for $1200/yr for replacement cost coverage (you do intend to get insurance, right?). That puts your monthly expenses (including mortgage) at $1264.  Assume another $400/yr for HOA - that's $1294/mo. If you are very aggressive and do only 5% for vacancy, maintenance, and capex - and $0 for management, you would already be at $0 (or slightly negative) cash flow and $30k negative equity.  Terrible rental deal.

Can you make it into something by doing owner finance?  Maybe - ask your 5 friends, but seems like the buyer would need to have lots of cash and good income and not be very smart (because he/she could rent or buy a similar house for less all day long).  Put some numbers together that include all the expenses then line that up with a plan/exit strategy that shows you making money that has a high probability of success. Not sure its there.

Bil Casimir · Answer

Jerry, owner financing is what they are doing!

Jerry Ta · Answer

It's because they're looking to buy and owner finance, not hold as a rental.

Bil Casimir · Answer

I keep reading this is a bad deal but I know of 5 investors in Houston that buy subject 2 properties all the time with similar numbers.