My first rental property investment (maybe?) - Analysis Feedback

7 Replies

Hello fellas!

I am very new to real estate and I am eager to get into it. For the past 1-1.5 months I have been constantly listening to book, reading the forums, looking at YouTube videos and doing everything I can to get educated. I network with a couple of real estate agents trying to get some listing my way that could be worth while investments. So far this is one is the one that stands out to me:

1 SFH home, in Columbia, South Carolina. It is about 7-10 min away from a pretty big hospital and very close to it there are neighborhood with houses in the 150's.

This is the current status. It is currently leased for 625 per month on a month to month lease and it seems below market. I know the current tenant in quite upset cause the house has roof problems. My plan is to go in, buy it and fix the roof (around 5k) and ask for the current tenant to pay 675 or 650 if he agrees to sign a yearly lease. 

Without Increase:

With Increase:

To me, and from what I have heard, the ROI seems pretty low as well as cashflow. I have been having a hard time finding anything that meets the 2% "rule" and most things I come across are in the 1.5% max. I wanted to include property management fees for the sake of being conservative (I live about 1h30min from that house) and probably do not want to manage it forever. 

Just wanted others to get an eye on this and let me know your feedback. This house has some potential for a BRRRR also. It is quit dated and needs a lot of fixes.

Thank you for taking the time to read and I appreciate any feedback!

@Aris Alexiou what zip code is this house in? Based on the asking price it seems like it could be in 29203. 

Out of town investors typically don't do well there. Not saying it can't be done but I wouldn't recommend it for your first purchase.

Forget the 2% rule.  Other than in extreme situations you are going to be buying in war zones.  The calculation I use is:

I will pay 60 X monthly rent for a rent ready property in a C/C+ or better neighborhood.  That puts me around the 1.5 to 1.7 area.  It has served me well.

I haven't figured out how to be successful owning rentals at a distance.  Sounds like @Will Gaston provided some good advice.

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@Aris Alexiou I personally wouldn't recommend any out of town buyer to purchase in that zip code. 

I think money can definitely be made there and has by plenty of people. But it is hands on and requires highly active management. @Christopher Bunge and @Andrew R. Lucas have lived in Columbia longer than me so they may disagree. I think all 3 of us have bought there but it's not something I would do any longer unless it was a screaming deal.

Again, I think it can be done. I just wouldn't recommend a first time, out of state investor to buy there.

@Will Gaston Interesting coincidence, I am actually working with Christopher on this haha! Yeah I am not really out of state but I do live in the southern part of Greenville, SC. What you say totally makes sense. I will keep all this in mind moving forward! 

I didn't jump in earlier because I thought it important that Arie was getting responses not colored by the opinions I have based on the king's ransom we make on a 40K house ;)
Will Gaston, thank you for the vote of confidence.  I think you might be surprised by how large 29203 and 29204 are and what is going on there.  I prefer everyone is surprised about what's going on there, I don't need the competition.
I am interested by Jacob Sampson's comments.  I agree that 2% is rare and practically only going to happen in a war zone which Columbia doesn't have many of.  I see numbers like tjat and 1.5 to 1.7 as pretty arbitrary but it is necessary to be able to compare one against another.  1.5 to 1.7 is aggresssive but do-able and a property below that in a C neighborhood needs a solid reason to consider it.

Couple of things about this particular house change the math a bit.  It is actually about 200 yards from 150 to 225K houses.  It's on the edge of Earlewood in an area demonstrably gentrifying, whatever one decides that means.  I expect this to be a 119K house in two years (after a flip-quality 25K rehab).  It is also next door to two houses and across the street from a house, all in the middle of being renovated.  The subject property is the worst one on the street, to put it bluntly.

To invest long distance in C properties is not everyone's cup of tea.  You have to have property management that can competently and efficiently handle the properties and tenants.  And honestly, there really needs to be an advantageous exit strategy if the investor decides they want to do something else.  And the rent return on each property has to stand alone as a good investment and the appreciation and other exit strategies are icing on the cake.