SFR Analysis Help Please!

[Trevor Martin]

Hi all,

I'm looking to add my third SFR to my portfolio. I'm looking for some help in my analysis to make sure it's a good deal:

Asking price: $85,000 (paying cash - may refi later to buy more properties)
Taxes (2012): $1690
Expected rent: $950/mo

Now it may not look like such a great deal there, but where a lot of the value in the home comes from is it's recent rehabbing. New roof (tear off), furnace, water heater, central air, siding, gutters, downspouts, waterline, driveway, and flooring/paint.

I wouldn't have to touch this home in terms of big-ticket maintenance in 20+ years, plus it cashflows positive:

$11,400 yearly income
-$1690 tax
-$840 insurance
-$912 property management
-$6336 30yr @ 3.5%
__________________________
$1622 net annual income

Is this a good deal? I realize there may be better cashflow deals out there, but with the included upgrades, I feel as if this is a go.

Thoughts? :)

EDIT: If you aren't keen on this deal as-is, what price do you think would make it a good deal? I believe the sellers are pretty motivated.

[Jon Holdman]

You've missed a bunch of expenses, such as vacancy, make ready, maintenance, utilities (at least when its empty), capital, legal costs, CPA costs, lengthy evictions, tenant damage over security deposits.

I'd apply the 50% rule and say total expenses (including taxes, insurance and PM) are $5,700. With your payment, you're in the hole $636 a year.

You're probably right you won't have to buy a roof for 20 years. So, you just need to budget 1/20th of a roof each year. With the AC and furnace, you won't be so lucky. Those will likely need replacement before that, and will certainly cause you multiple $300 service bills during those 20 years. Water line and driveway, you're probably. Gutters and downspouts are a problem. I know people who deliberately remove those on rentals. Flooring is good for five years according to the IRS. Good luck getting three. Paint is also a frequent costs, though often it comes, at least in part, out of the deposits. You'll have routine maintenance, too, like new faucets, range, clogged drains, etc. And, with a PM, every little thing is going to be $100 or more.

It would be a better deal if you managed it yourself. For example, I had tenants call and say they had a problem with the sink. Turned out the faucet had broken. And turned out it was a Home Depot one with a lifetime warranty. My total cost? $0. Had a PM sent a plumber I'm sure they would have just bought a new faucet and charged me to replace it.