Possible first deal

[Mark Maire]

Found a 4BR/2BA on MLS for $136,000.
Principal & Interest: $557
Taxes: $94
Homeowners Insurance: $55
MONTHLY HOA: 30

Only rents in the area are 3BR/2BA for 1350-1450
I will go with 1450 market rent.

Home needs carpet, paint, updated fixtures. Estimated $7500 in light rehab.

I am leaning towards putting in an offer at $115,000. Hopefully accepted but willing to meet in the middle.

[David Beard]

First of all, discard the 2% rule when evaluating properties in this price and rent range. It's also very dependent on the local market, and for landlords that want to own properties where they live (generally a good idea), you have to work with what is available.

For this type of property, getting 1.25%/mth is probably acceptable (15% annual rent yield). At $1,450 rent, that means max purchase+rehab around $116k, so your thinking is sound. With a higher end property, with self management, you could probably net 65% of the gross rent to be applied toward P&I and your profit. So if you borrow 75% of that at 5%, and net 9.5% on the property, you will have an ROI of around 22%, including principal reduction. Plus tax benefits will give you some extra juice, up to the mid 20's on ROI. Nothing wrong with that, and you are in a nice neighborhood with better prospects for appreciation and better tenants to deal with.

Looks good to me.