Is this a good deal?

Question

I have come across the opportunity to buy a town house for $74,000, that recently appraised for $115,000 & rents for $900 monthly.The property is in great condition and needs no repairs at the moment. It has tenants already that have been renting for over a year. There are no HOA fees. Financials below - I'm just not sure how much I should realistically be aiming to make off of each pro

Mortgage

465

PMI

0

Insurance

32

Taxes

64

Vacancy

45

Cap Ex

90

Maintenance

45

Property Manager

0

Total Exp.

741

Income

Monthly Rent

$900

Annual Rent

$10,800

Cash Flow

Monthly Cash Flow

$159

Annual Cash Flow

$1,908

perty. This property cash flows $160 monthly based on my projections.

Khaled Helmi · Answer

I'd boost up the vacancy rate (I prefer to assume 1 month vacancy per year so thats 1/12 of the monthly rent), so that may lower the cash flow to around $130ish.

I know nothing about your area, but I assume its a decent neighborhood so in that case it seems like an OK/borderline project in my view - a single versus a homerun.  Should you do it?  I think that depends on your own personal financial goals, but this makes more sense for someone already possessing cash looking for safe investments.

The only other reason that may make this a buy for you (assuming you're not a cash investors just looking to protect existing wealth) is if you've never done any project before - in which case it'd be a nice learning experience to get the ropes down before you move on to better projects.

Of course this is all very VERY generic advice since I dont know anything about the area or particular townhouse - those things make a big difference as they affect the future value or the work needed to maintain it.

Austin Works · Answer

So $160 for a single rental is a decent cash flow? I'd have no money in this deal after the refi. Obviously, this will be my first rental.

Aaron Hearne · Answer

@Austin Works

Well, did you buy?  If so can you share your experience?

David Ferrette · Answer

I am with Steve on this one, if you are buying at a severe discount and it cash flows, I would say this is a good deal from what you describe.  Of course if this is in a war zone, drug zone or any other terrible zone, you would have to figure that in as well.

Steve K. · Answer

@Austin Works

...looks like you're buying for 64% of ARV.....and needs no repair? If you can verify that ARV to your own satisfaction.....looks good.

Austin Works · Answer

@Gary Headrick; @Khaled Helmi

Austin Works · Answer

Can you tell me what you look for in a cash flow property? What's your target cash flow per SFR (these are most common in my area), what type of neighborhoods seem to cash flow the best for you? Again, I am seeking cash flow to supplement my income primarily with the added benefit of loan pay down and appreciation.

Gary Headrick · Answer

I agree with Khaled's comments. Additionally take a good look at the roof, plumbing and electrical. One blown A/C would put a serious dent in your profit picture. The only way I would be serious about this (other than the experience) would be if you are looking at strong price appreciation for the area.

Austin Works · Answer

This is in a great neighborhood & zoned for the best public schools in the city. My goals at this point are to acquire cash flowing properties to supplement my income & build wealth through the loan pay down & hopefully some appreciation. On your typical deal in a nicer area, do you still see strong cash flow, or are they usually more conservative like this one? I know other investors who are doing great on cash flow by purchasing low income rentals, but that does not interest me at the moment.

Is this a good deal?

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