Would really appreciate feedback on this property

Question

My parents want to move to a bigger house to accommodate our needs in the next year or two as our family is growing. Rather than selling the current house, I have been thinking of alternate ways to make use of this property to generate a side income stream.

Here is where it gets a little tricky. From my initial analysis, I don't think the it would make much sense primarily because the property tax to rent ratio is too high to generate a healthy cash flow. I would like to get others opinions on this.

This house is located in South Jersey area. 3BD, 2BTH, FB

• 1382 sq ft living area. 7000 sq ft lot.
• Mortgage balance remaining is $112k 
• Monthly payment: $1250 (PITI)
• 2019 property taxes alone were $7000
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The going market for similar property is 1600-1800. Based on a rent of 1650, cash flow would be just below $900 for the first year after taking out 20% of the gross rent for expenses/maintenance. This would increase over time, but is this starting cash flow worth the headache that we hear so much about for landlords?

Forecasting 10 years: expenses set aside for be approx. $40,000 (whether that gets used or much it gets used would be up to me) and cash flow accumulated would be approx. $17,000.

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Jonathan Greene · Answer

@Muhammad Afzal every single person who ever advocating or who has done deals to get $100/door per month is now going to have to sell the property. At that tiny cash flow, anything that goes wrong destroys a year or two as those making $100/door per month often don't plan their repair fund well enough.

Jonathan Herron · Answer

I agree with @Jonathan Greene's thoughts on the current value of the property as a rental.  That said where in South Jersey is the property located?  Have you spoken with any real estate agent about the current market sale price and how they see that market developing in the near future?  That might influence how you can price the potential rental.

Muhammad Afzal · Answer

Thanks for the input Jonathan. I have read situations where people actually have been doing rentals only to get cash flow of $100/mon, so I wanted to get some broader opinions on it.

Muhammad Afzal · Answer

Thanks for the response Aaron. I had not heard of Mello Roos until now, but this is not the case here. This is actually a $145k property built in 1955 that was bought back in 2009 and evaluates for about 165k at the moment in the market. Town assessed value is at 185k.

Jonathan Greene · Answer

Those numbers don't work at all and don't look to increase a ton over time. If you have one major expenditure in the first four years, all of your cash flow will be gone. I would not keep it.

Aaron K. · Answer

Those property taxes are high I'd guess this is something like a $350k property built relatively recently with a ton of Mello Roos?  Doesn't seem like a great investment probably better off selling and buying something else as an investment if that is the way your parents want to go.

Would really appreciate feedback on this property

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