Analysis of Duplex in rural area
I am looking at a duplex in a rural area of Northwest Indiana. The SP is 148,000. The annual rents are 16500.Taxes are 4300. Insurance is $1200. My concern is two fold:
1. Finding tenants in rural areas. Does anyone have properties in these areas and what is your experience in finding tenants?
2. What to start negotiations out at? I was thinking around 125k and not go over somewhere around 132k.
Thanks for the help.
Most Popular Reply
Umm, pass.
Lets assume all the info you have is correct and that you've done your due diligence. So you'll buy at $148,000 and put 25% down to get your conventional 5% fixed rate for 30 years loan. You'll put down $37,000 in cash and you'll have a monthly payment of $596.
Per your numbers, your annual rents are $16,500 so you're getting $1,375 a month. Assuming you're familiar with the 50% rule, your monthly NOI would be $690 meaning you cash flow $94 a month after you pay your mortgage.
So $94 a month is $1,128 a year divided by your downpayment of $37,000 is a cash on cash return of 3%.
Here's the real fun part. My property taxes are about 5% of my rents... this property is paying 25%. For you, the 50% rule is probably closer to the 60 or 65% rule meaning you won't cash flow, you'll be negative cash. On a property in a rural area with limited appreciation potential? This is a silly investment unless you're a long term speculator.
Look for properties that have taxes closer to 1 months rent... for purchase prices that generate at least 1.5% of the price in monthly rent. Then you'll be in a better area to invest, at least from a cash flow point of view.