I could use some help in thinking through a rental property.
Duplex: both units are 2/1... 1920's yrblt. Asking price is $40k but might get it for $28k (negotiating). Some deferred maintenance (paint, roof, interior work when tenants move out). With repairs... lets say $40k into it?
I don't see appreciation in this neighborhood. Near a university but on the edge where the neighborhood starts going downhill. A C or C- area.
- Total gross rent is $700 / month... I think this could be at least $800/month, but evaluating based on what it is.
- Taxes and Insurance $110/mo
- Utilities $80 / mo
- management fees $50/mo (8% management... not to mention leasing fees that I put into the vacancy number)
- repairs $140 / mo. (old building is going to need repairs... is 20% too high?)
- vacancy $130 / mo (I did one month plus the leasing costs)
- Cash flow $190/ mo if there is no mortgage.
I would really like to BRRRR my rentals... so with a mortgage, it drops down to about $30/mo. Which is no good
My conclusion: This could be ok if I can get the rents up... but still not a great deal... and I don't like betting on ifs.
Do you agree? If I could get it for even less, is there a price point it does become worth it? Seems to me that rent level and the expenses make this a weak deal. What thoughts do you have?
$30/mo is really not great. At those numbers this property becomes a liability, not an asset. I generally shoot for cash flow of $200/mo per unit, but as long as it's 12% cash on cash ROI, I can work with the $200/mo.
I see the $40k as being quite high potentially. Either it's really, really run down, or you are estimating finishes that are too nice for the area. One other thing, if you spend $40k in repairs, presumably, you can drop your estimated repairs per month budget.
I would work with the numbers until you can get closer to 12% ROI. Too much can go wrong with rentals to settle for any less.
Thanks Allan. I did not type my post out well... I was aiming to be all in at 40k... so 10-15k in repairs. You put it well.... too much can go wrong to settle for less. If I aim at 12%, even a rent increase would not offset the expenses enough to hit 12%.
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