Real Estate Agent · North Port, FL · Member since 2016 · 97 posts · 42 votes
10y
WOW on the insurance! out hear we get raped as landlords then. Repairs are misc repairs that will come up and represent 5% of the monthly on national average. Capex are structural as below and divided by the average years of each since it is not whether it goes but when it goes.
Rental Property Investor · Ripon, WI - US · Member since 2015 · 70 posts · 16 votes
10y
@Account Closed What about repairs, vacancy, property management?
Also are you planning on living in this house or renting it out? If you plan to rent it out right away how are you planning on getting a down payment less than 20%?
Also did you include PMI in the mortgage calculation?
El Paso, TX · Member since 2015 · 33 posts · 9 votes
10y
If I use 20% down payment it is $350/month mortgage.
I currently have a primary residence and this would be my investment, the property is not in bad condition, needs painted walls and cabinets, new appliances and carpet. How much is good to budget for a 1200sq/ft home? I would figure around $3500.
I have not investigated much about financing an investment property, if 20% is required I would happily put that down. I know 20% is the standard down payment however, I always seen the no money down blah blah blah. I felt 15% was a comfortable down payment and still have decent cash flow.
Rental Property Investor · Ripon, WI - US · Member since 2015 · 70 posts · 16 votes
10y
You might want to consider 10% of rent for property management (even if you don't plan on using it now, you might in the future) 10% of rent for vacancy (assuming you might have about one empty month per year) and 1-2% of the property value per month for repairs (they are going to happen and you want to make sure that you have saved up for them).
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
10y
Yea. There's a huge caveat to this, but they don't have no or low money down financing for investment property loans - at least not the traditional method. There's way of getting no to low money down (hard money then refi, etc). Or simply a cash out refi.
In terms of whether this is a good deal or not, this is how I'd weigh in on that.
1) You really need to know the rent number. Is it 900 or is it 1050. That 150 may very well be a majority of your net profit. So its a big difference in knowing.
2) What are the repairs? None? Really? No paint needed? No flooring needs to be replaced? Locks changed? Is this a turnkey property or something? I don't know of much on MLS that you can buy and it doesn't need anything.
3) Which brings me to another key analysis question. I see the purchase price is 91k. But what is the thing worth? What will it appraise out for? 91k? More?
Ultimately, lets just say your rent 1k/mo. And your costs assuming 20% down and the loan terms you have up there (which the rate seems extremely optimistic for an investment property loan) are $600/mo.
Thats a $400 gross profit per month. Add in monthly repairs and typical vacancy and you'd probably be looking at a net profit of about $175 to 225/mo. Lets say - 2,400/yr
Is that a good return on an 18k investment? Better than 10%. And then you'd get some principal paydown in there too of about $70/mo or 840/yr. And then lets say you get some appreciation of 3% a year or 3k/yr.
Thats your total return on that 18k investment = 6,300 So whats that for a return on an 18k investment? 34%?
So if there is really no rehab (again, that seems odd), then it doesn't look that bad.
The one other issue I have though is whats the house worth? Are you paying 91k for a house thats worth 91k? Thats one thing I would not recommend. I typically want to be all in (purchase plus rehab) at 70% LTV or maybe 75% if its a house I really want (relatively newer house, great equity capture, etc).
The advantage there would be you could pull some of your 18k back at some point in a cash out refi (at least when you own 4 or less).
El Paso, TX · Member since 2015 · 33 posts · 9 votes
10y
Mike H. this is good advice about getting the property at a discount. The 70% LTV or Loan to Value is that including or not including your downpayment? I am assuming it is full in what you invested.
It seems the house is NOT selling at a discount, it is hard to get comps in the area because I am in West Texas (EL Paso) and unlike Florida (where I moved from) I think the recent sales prices are banned from being public information. If I look at what houses are currently selling for, around $85/sq foot this house is not a bargain or overpriced. However, it has been on the market for 178 days, which I feel is an advantage.
On the rental price, there is a house slightly larger and with better landscaping and backyard on the rental market for $950/month. I would say $900 is a good target rental price.
On the remodeling, this house will take around $5,000-$7,500 to get into a good rental I would not be ashamed of renting out.
After listening to your opinion, it seems this house is a risk at 91k, and should bargain for around 65k which I have NO IDEA this property would sell for this but rather 80-83k seems more reasonable with a quick close.
Rental Property Investor · AK · Member since 2016 · 58 posts · 14 votes
10y
The market in El Paso is crazy. We own two homes here. One on the West side and one on the East side. Taxes are insane and increase every year. Insurance costs are so so. As far as rental income - the new builds keep the rental profits low. There are literally new builds sitting vacant all over the city, therefore driving down the potential for all of us. I would ask a realtor to give you a market analysis before even considering to make an offer. With that, they can give you an analysis of what it would rent for. As far as repairs go - how many square feet is it? We just recently did some reno's on our East side home and we put in about $10k into it as far as carpet, tile, paint, kitchen updates and new appliances. That doesn't include converting from swamp cooler to AC, at another $6k cash. Our home is built in 1991, 1661 sq ft. Also, school districts are a big one for me. As well as location - safe, quiet, etc ... Lots to consider. Who is your target audience?
El Paso, TX · Member since 2015 · 34 posts · 13 votes
10y
Hi @Account Closed,
welcome to El Paso. I hope you enjoy our dry weather.
IMHO, you need to consider (and save) for big maintenance expenses; Changing an AC/Heather can go over $1000 and they last 10 years max. I think the "50% rule", which states that you will expense half of your rent in maintenance, is an ultra conservative but save parameter to evaluate if a deal makes sense or not.
Here are the numbers considering that rule:
Purchase Price 91,000
2015 Taxes 2400 200/month
20% downpayment @ 4.00 for 30 years 348/month
Property Insurance 50/month
Maintenance/and other expenses $450/month
Total monthly cost $1048/month
Average rent in the area are listed around 900-1050/month
IMHO, you can a cashflow from $-148 to $2
I will not go for it.
Here are similar houses that you can probably make them work if you offer less:
Real Estate Agent · North Port, FL · Member since 2016 · 97 posts · 42 votes
10y
It is a small positive cash flow of 1100 per year so check on average appreciation of similar properties over the past 4 years to determine if it is worth the long term hold.
Also insurancce for .65% seems very low is this property insurance or Landlord Insurance?
El Paso, TX · Member since 2015 · 33 posts · 9 votes
10y
@Laci J. I agree with you about the new builds driving down the appreciation, I also feel this is why a rental needs to cash flow from day 1 with little to no assumption of appreciation.
I have not seen the part where you say new builds are sitting, in the east side a new build will AT MOST sit for 1-2 months and eventually be sold. The new builds are ranging from 90/sq ft to 120/sq ft for the high end.
Just curious on the AC/Heater change out price? Where are you getting that number from? Do you have guy that can do it for $1,000? I know A/C replacements are around $5,000-7,000...
In El Paso, we have little in the way of natural disasters unlike Florida (I moved from Florida). My primary home is around 170k and has a 500/year premium. My house in Florida was 130k and had a 1200/year premium. Taxes are more than Florida here but cheaper insurance helps a little.
Rental Property Investor · AK · Member since 2016 · 58 posts · 14 votes
10y
We have new builds that have been sitting empty in our neighborhood since we came on a house hunting trip in Sept. And yet, they're still building more. I can think of at least 6-8 homes being built off the top of my head. They will sell, no doubt. There are others that I was keeping an eye on last summer all over the city that are still sitting in my saved file on Zillow. So I know they're out there.
And yes - to be a successful and smart rental, you need positive cash flow from the beginning. I'm not saying not to buy a house that needs repairs. Do. But buy smart.
Real Estate Agent · North Port, FL · Member since 2016 · 97 posts · 42 votes
10y
WOW on the insurance! out hear we get raped as landlords then. Repairs are misc repairs that will come up and represent 5% of the monthly on national average. Capex are structural as below and divided by the average years of each since it is not whether it goes but when it goes.
This is a very good spread sheet! Seems as was mentioned before by @Mike H. that unless the property can be purchased around 65-70k putting it right around a 70% LTV this is a NOT a deal, then and only then you can cash flow around 100/month.
I guess I will mention a Warren Buffett phrase,
"What’s nice about investing is you don’t have to swing at pitches. You can watch pitches come in one inch above or one inch below your navel, and you don’t have to swing. No umpire is going to call you out. You can wait for the pitch you want."
Real Estate Agent · North Port, FL · Member since 2016 · 97 posts · 42 votes
10y
@Mike H. is right and a good rule of thumb. And I love that Warren buffet quote. The rules of thumb vary by area. As a Landlord, investor, and Realtor that consults for investors I take great efforts to know the numbers of MY area and use several spreadsheets to analyse each "Fast Ball" or deal in minutes as a result of preparation. Around here you can get away with around 80% - 85% LTV but the major factor is the ratio of rent/purchase price. In areas where that is not high on the rent end it is harder to make that work. Looking for sections of your area where rent is higher not in general but compared to purchase price and documenting it is the key to knowing where to buy&hold. then take the capex numbers and apply your area costs and the other factors too. then you have the research done and are ready to evaluate a property in minutes.
Lansing, MI · Member since 2015 · 301 posts · 149 votes
10y
@Account Closed
Send out some letters and find an off market deal. You'll get a lower purchase price, should have equity right from the jump, and you may be able to owner finance.