This property was sent to me as a possible investment. I did the calculations under rental (buy and hold) as that is what I would do with it. I think it was meant as a hack but it is too far away from where we want to live. Is there a way to make it cash flow without hacking or should another strategy be used? It doesn't seem to need any work so I cannot see another option. Anyone's thoughts please?
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I see two ways to make this work. Pay less or increase rent. Is it already rented? Why are your expenses more than your income on it? You're not making anything in the wedge. Are you sure you're valuation is right on what the property is worth?
I see two ways to make this work. Pay less or increase rent. Is it already rented? Why are your expenses more than your income on it? You're not making anything in the wedge. Are you sure you're valuation is right on what the property is worth?
Yes, pay less and increase rent seems to be the solution or house hack so that won't work for me.
I do not find anywhere that says it is already rented.
The expenses are what I found from the listing the agent gave me and other research.
I am not sure the valuation is right at all nor am I sure of most of my numbers as I am still new to REI and doing calculations on properties. That is why it was posted here for creative advise but it only seems to be a house hack possibility.
Thanks Michael for the response and seemingly confirmation that this is not a deal for me.
House hacking won't help you at all from a cash flow perspective. That only would make sense if the rent from the other place covered the mortgage and expenses for the whole property.
I'm not saying that it isn't a good deal. I'm not saying it is one, either. I'm just saying that your numbers might not be right. On one hand, why are they selling? Is it because they realized that they're losing money on it every month? If so, then don't touch it with a ten foot pole. Or perhaps they're trying to shoot too high with their asking price. Have you looked at the previous selling prices of the property? When was the last time it was sold and for how much? Property values fluxuate, but it could give you a rough idea on the history of the house. If that house sold for a little less than that in 2007 at the top of a market, versus if it sold for a fraction of that 6 months ago, will tell you a relatively clear story about the house. Don't buy from a flipper, since they're going to ask for at or near market value, and there's no money in the wedge for you, since they're taking the wedge. Conversely, rework the numbers with 70% of the asking price. How's it look now? If it makes sense, then submit an offer for less money. Find out if it's already rented or if you have to go find tenants? There is a bit of value in preexisting tenants so you don't have a bunch of vacancy up front that you'd have to eat. Moreover, that also means that you don't have any renovations to do up front, either, which is nice, and would give you some time to save up some money from the cash flow of the rents to cover it, when and if the existing tenants leave.
Bottom line is that you need more information before you can make a determination to walk away or not. There's always a number that can make a deal workable. You need to figure out what that number is, and if it's feasible to get there.
Central Florida · Member since 2019 · 88 posts · 10 votes
7y
@Michael Goldsmith Yeah, my numbers probably aren't right and that's why I am here. I don't know why they are selling but it does appear to be owner occupied so they may have family in the other unit.
Previous selling prices:
1998 $110,600 (house built)
2002 quit claim
I didn't do anything but change the purchase price to 70% ($195,300) and monthly cash flow would now be $297.09 and 8.48% cash on cash ROI.
So that works a little nicer but probably should rework the other numbers and do a little more research.
I think you should dig a bit deeper. Look into both comp rents and comp property values in the area. If you don't have access to the finer details, I have propstream, so I can help you a bit. You may need to look up the property in the county appraiser's office.
One thing I'd like to caution you about. It's very easy and fun to just play with the numbers to make the report say what you want, but you have to be very careful when you do this. The more you play with it that way, the further you travel from a realistic expectation. If their asking price is 279, and that's actually the market value, then they probably want that much for it, and it would take a hell of a salesman to get them to knock off 30%. That's about 84K you just made disappear on your report. It's good to know where the number is that makes it work for you, but don't change the experiment to bias it to fit your hypothesis. Know what I mean?
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
7y
@Deb R. And after looking at the report, you dont have pool as an expense. Maintenance will run you a minimum of $100/mo, but in reality probably $200 - $300/mo, with pump and filter maintenance
Central Florida · Member since 2019 · 88 posts · 10 votes
7y
@Michael Goldsmith thanks again for commenting, I did a brief glance at the area values and if I remember correctly it was inline, maybe a bit high. What is propstream?
I am playing with the sale price a bit but not the maintenance and such as I know that will bite me in the behind. I am trying to figure out how to assess my maintenance and other numbers to have a solid foundation for what it would cost to rent out. That way if the property sits on the market for a long time, I will have everything all calculated out and a sales price that will make it all work. Is that not a good strategy?
Central Florida · Member since 2019 · 88 posts · 10 votes
7y
@Jason D. I really don't want a property with a pool as I have never had one and don't know the first thing about upkeep. There are not a lot of properties to pick from in the first place so I was open to running the numbers. As you pointed out in your second post I do not have my numbers correct because I did not factor in the pool, thanks for the catch. Now I have more information about how to do my calcs, so much to learn. Thank you.
another question, you don't like pools for rentals, what about two story properties? Is there any problem with the stairs increasing damages from moving furniture up and down them? Or does it increase liability? Any thing else like that not mentioned that would make a bad rental?
@Deb R. Propstream is an overpriced software program that I'm paying for that helps me find properties and run comps without having to bother a real estate agent for them/ having to wait, blah blah blah. It does a bunch of other stuff too, including direct mail marketing etc. I haven't really delved too deep into that just yet though. I'm kind of buying an SUV for a cupholder, but I think I get enough value out of it to justify the spend, at least for a little while. It's not perfectly accurate- sometimes the data's a little outdated, but sometimes it's spot on. If you want to send me the address, and your email, I can run it through for you and see what it spits out for you.
@Deb R. Propstream is an overpriced software program that I'm paying for that helps me find properties and run comps without having to bother a real estate agent for them/ having to wait, blah blah blah. It does a bunch of other stuff too, including direct mail marketing etc. I haven't really delved too deep into that just yet though. I'm kind of buying an SUV for a cupholder, but I think I get enough value out of it to justify the spend, at least for a little while. It's not perfectly accurate- sometimes the data's a little outdated, but sometimes it's spot on. If you want to send me the address, and your email, I can run it through for you and see what it spits out for you.
(imagine a boisterous voice) You spent how much on that cup holder?!
I think that would be interesting to compare it to a CMA an agent would supply, I might take you up on that thank you.
LOL You know, I've been using that line for years and that is the funniest come back I've ever heard to it.
But yeah, I'm happy to help. Drop me a line with the address and I'll send you what I can dig up on it, and you can compare it to the agent. Bet you a dollar the comps are spot on.
The inaccuracies I've found in the software are more along the lines of something not showing up on the market yet. But comps are past sales. So unless the comps you're getting are on sales that were super recent, then I think I should have access to the same info that your agent has.