Buy and hold rental analysis

10 Replies

Looking to use a part of my savings to pick up an investment property and become a landlord. Let me know what you think of this property.


1000 SQFT 2Br/1Bath in Hammond, Indiana. 7133 Hohman Ave. Supposedly good rental market for blue collar Chicago workers. B class city per Niche.


Asking price: 89k

DP: 20% 17.8k

Rehab budget: Inside is good condition, but dated. 3-5k for new appliances, fixtures, countertops, etc.

PITI: $485

Average rent in area: 1-1.2k

With 50% rule that's around $250 a month cash flow.

Is it worth it to try for 5-10% conventional loan since it's not distressed? Best case scenario would be to get it for lower than market value to BRRRR it, but don't see that happening since it's on market and not distressed.

Let me know if I'm on the right track or there are other variables I'm missing.


I would consider is that vacancy rates for that area are ~10% and to get a high quality tenant, you would need to be on the lower end for rent for that area. Even some houses are listed for rent at $1000 and have been up for a week or so. Also, with everything going on right now, vacancy rates might even be a little higher.

Running the numbers with 10% vacancy and using $950/mo to break that 1k barrier on filters when people are searching, that puts your cashflow closer to $130. Even though that's still a decent cashflow, it's definitely something to be considered for that area. Good luck.
Originally posted by @Whitney Hutten :

@Jack Plantin Do you have capex and maintenance figured in?

 I was using the 50% rule, but I realize now it should be 50% of rent income which would be $500 a month in expenses, not $250. Still seems excessive for a 2 bed house. What percentage do you factor in for capex and maintenance on SFRs?

@Jack Plantin I don't use percentages rather underwrite estimated/actual costs.  The only percentages I use are the following for my market (so these may not apply to your market):

- Vacancy 8% (This equates to 1 full month of rent. Note, I'm doubling this for the next 6 months at least due to coronavirus impact to account for economic vacancy)

- Capex 5% (I do full rehabs. However, things will still break down)

- Maintenance 5% 

- PM 8-10% depending on location

- Taxes - I pull from Redfin, Zillow or county assessor (watchout for homes that still qualify for homestead exemptions and adjust accordingly)

- Insurance - Call around for agents in your area that you are looking to buy in and get a base rate to underwrite.  This will be a moving target until you have it locked in by the deal.

- Utilities - Be sure to understand (especially if buying turnkey because the lease is already in place) who pays utilities including, garbage, lawn care, snow removal, pest control, etc. I generally push all utilities to the tenant.  I do underwrite cleaning the gutters and possible pest treatment 1 time a year (but I don't tell them that).

You can't just use the 50% rule, @Jack Plantin . That's a recipe for disaster. You have to fully analyze and underwrite every potential deal.

  • "Supposedly a good rental market." There shouldn't be any "supposedly" about it. Do your research.
  • $3-5k seems optimistic for new appliance, countertops and fixtures. I'd nail down that budget.
  • You won't get a 5-10% DP loan on an investment property. Expect to put down 20-25%.
  • Adding to @Whitney Hutten 's comments, I underwrite to 15% combined for repairs and CapEx.
  • Using a conservative rent of $995 as @Jeremy Pearson intimated, I bet you cash flow ~$200/month and see a CoC ROI of ~10%. Not too bad for a first deal.
Originally posted by @Jaysen Medhurst :

You can't just use the 50% rule, @Jack Plantin. That's a recipe for disaster. You have to fully analyze and underwrite every potential deal.

  • "Supposedly a good rental market." There shouldn't be any "supposedly" about it. Do your research.
  • $3-5k seems optimistic for new appliance, countertops and fixtures. I'd nail down that budget.
  • You won't get a 5-10% DP loan on an investment property. Expect to put down 20-25%.
  • Adding to @Whitney Hutten 's comments, I underwrite to 15% combined for repairs and CapEx.
  • Using a conservative rent of $995 as @Jeremy Pearson intimated, I bet you cash flow ~$200/month and see a CoC ROI of ~10%. Not too bad for a first deal.

 Thank you. Good to know I should be more realistic about down payment. Will talk to more agents in the area to find out if rentals work well. And will run more specific numbers now with capex and repairs.

Originally posted by @Jaysen Medhurst :

You can't just use the 50% rule, @Jack Plantin. That's a recipe for disaster. You have to fully analyze and underwrite every potential deal.

  • "Supposedly a good rental market." There shouldn't be any "supposedly" about it. Do your research.
  • $3-5k seems optimistic for new appliance, countertops and fixtures. I'd nail down that budget.
  • You won't get a 5-10% DP loan on an investment property. Expect to put down 20-25%.
  • Adding to @Whitney Hutten 's comments, I underwrite to 15% combined for repairs and CapEx.
  • Using a conservative rent of $995 as @Jeremy Pearson intimated, I bet you cash flow ~$200/month and see a CoC ROI of ~10%. Not too bad for a first deal.

I reconfigured the numbers. Added 15% for capex and repairs, $3500 for closing costs, $900 for W/S/G (Should I make tenants pay this themselves in a SFR?), 10% vacancy, and it returns 7.5% COC at the $89k buy price. If they accept an offer of $80k (unlikely), then I could have COC of 10%.

Quick question Jaysen, do you allocate that 15% capex/repair money to another account somewhere? What do you do with that money if it exceeds what you actually spend?

@Jack Plantin I personally do move my reserves (capex, maintenance, and vacancy) to another account until I have 1 year built-up (or more depending on your risk tolerance).  You can also consider your insurance deductible as well. Then I divert and start saving for my next investment.  I always make sure my reserve account is solid before my next deal (I'm conservative that way). 

The reality is your entire portfolio shouldn't go vacant all at once, or need new roofs all at once.  HOWEVER, I think we are proving today, you can't have too much set aside!  You will have to find your own balance.

@Jack Plantin as everyone has said, get very detailed with your due diligence numbers. I would look at the Bigger Pockets files and download a couple of different spreadsheets to practice. I determine my decisions all around the hard numbers. 

Hey, @Jack Plantin , your tenants should definitely be paying W/S/G in a SFR. You want to know what standard practice is in your market, though. While I'd be shocked if this is the case, if all the owners in your market pay for garbage in SFRs, you'll be at a competitive disadvantage if you try and have the tenant pay.

I don't necessarily think you need separate accounts (we'll leave security deposits aside). Like @Whitney Hutten , I'm pretty conservative in my numbers. I see reserves as a way to maintain cash flow. When a vacancy happens, I still want to get the same cash flow that month.