How does this deal stack up?

Question

Hello, BP! I just had my offer to purchase accepted for my fifth property, the inspection came through with no major issues, and we're set to close on April 28th.

This deal is one that I'm pleased with, but not outrageously psyched over. I'm wondering how this stacks up with the deals most small investors are making in the US... is it better or worse? And how can I make future deals even better?

Here are the details:

It's a SFH, 4 bed, 2 bath.

Price: $103,000

Down payment: $20,600

Closing costs: about $2,000

Monthly rent: $1200

Mortgage: $80,400 @ 6% 25 years (choosing to use commercial financing due to my LLC) monthly payment: $518

Monthly taxes: $158

Monthly insurance: $70

10% monthly savings for repairs and maintenance: $120

Monthly NOI/profit: $334

This is a better than average deal in my area, but my dad and I have both purchased better. I do know that I will be able to rent the home for $1300 next year making my monthly profit about $425. So, at the current rent I'm making $4,008 per year and 17.7% CCR but when I rent it for $1300 I will make about $5,100 per month and 22.5% CCR.

We will manage it in house and have had almost 0% vacancy in this area. I've been investing for 3 years and this is property number 5. What are your thoughts? Should I keep buying these as they become available or is there better out there?

Thanks and happy hunting!!

Tim Nelson · Answer

We own 15 similar rentals in this market all cash flowing between $300-$600 and all are self managed. I checked out the appreciation, it's up 57% since 2000, which is a little better than the national average.

Michael Rutkowski · Answer

It's ok, but nothing to really get excited about. Stuff like this was my bread and butter for 10 years, and it is hard work. How many properties like this do you own? It starts to make more sense after 5 of these types. Any room for STR's in your market? If I were you, I would find some multi-families instead, or a run down property and flip it to cash flow.

Check out city-data.com for that city's statistics on home appreciation, in the form of sales prices over the years. If you have access to the MLS, definitely go there first for statistics, but city-data has some good tax info for free. My state is non-disclosure, so we rely on tax info for sales data. Not all states are the same.

Once you have that data, it may indicate that home prices are on the rise in your area, which is great. If it is near the top though, you risk losing a lot of your equity, because if home prices go down, many more will be able to afford a home, taking away from your renter pool.

And then there's the increasing Fed rates to factor in as well. I think it won't do that much to mortgage rates until at least 2018, but it should work in an investor's favor, as a lot of prospective homebuyers may be priced out of the market. Who knows what is going on with the Fed these days...