SFR Possible deal?

Question

Would the BP community think this would be a good first time home investment?

- SFR  63900.00  price
- 3 bedroom 1000sf  1970
- 825 monthly rent ( section 8 ) 
- good tenants in the home already
- OK neighborhood not the best
- no renovations need to be done

Annette Hibbler · Answer

Hi Mike,
For that price you could easily purchase two single family homes (3BD/1BA) in good desirable neighborhoods within Detroit, Michigan giving you:
$9000 gross yearly income each = $18000.  
Rent rates are $700 - $750 monthly
Property taxes: $100 month
Management fee: $100 month
Total Operating Costs: $270 monthly or $3,240/yr x 2 = $6,480
Net Monthly Income approximately: $550 x 2 = $1100 monthly net return.

Option 2: Seller Finance three SF homes at $32K
$20K Down for each
Total Gross Rent:  $700 x 12 = $8,400/yr x 3 SF = $25,200
Costs Include: 
Finance payment $250 month over 4 year term (paid directly out of rent) no additional out of pocket for you. $250/mo x $12 = $3,000/yr x 3 SF = $9000/yr
Operating Expenses include insurance, taxes, 8% management fee = $230/mo x 12 = $2,760 x 3 SF = $8,280/yr
Remaining monthly balance of $230 paid to you monthly

TO SUMMARIZE: 
Gross Yearly Rent $25,200/yr
Less Operating Exp: $8,280/yr
Finance Payment:  $9,000/yr
Providing you with a NOI of $7,920 during the 4 year finance term.

At the end of the term, your NOI is $16,920/yr

How does that sound?

Aaron Mazzrillo · Answer

Are you paying cash or financing it? If financing, how much down and what are the terms (interest rate, fully amortized?, how many years)?

Michael S. · Answer

Louisville has a high corporate tax rate. We have lost a lot companies to surrounding cities and it has impacted the market in recent years. I appreciate all feedback good or negative. I figured it would be wise to see what everyone would think about it. Im new to all this!

Tom A. · Answer

Michael, I don't know your market but I'm surprised that a Section 8 property with $825 rent goes for $64K.  That purchase price seems high for a middle-of-the-country real estate market, although our coastal counterparts are probably used to seeing parking spaces sell for more than that.  $64K in my market would get a suburban non-Section 8 home with a rent of $1100 - $1200, but we are spoiled with high rental returns.

If you want to be an active real estate investor it makes sense to buy close to home if you can get a decent return.  Your deal sounds OK but not great from my perspective.  You might want to talk to some local investors to get their take on it.  I'm sure there are some here on BP and at your local REIA that would be happy to share their opinion.

Michael S. · Answer

the home seems to be nice enough to attract better tenants (new kitchen and bathroom) once the lease is up. The average rent is 900 in that area. Im trying not to pull the trigger just because I want to own a RE invest property. Its not too bad I mean, I wouldn't mind living in it. its layout is your average 1970 ranch style house. its brick and some vinyl.

Michele Fischer · Answer

Michael, this deal sounds similar to my market and would be one I'd consider.  Have you been inside to see the floor plan and condition?  Is the rent at market?  Stable tenant is great, just realize that future tenants may be more problematic in a "not great" neighborhood; it could be more of a roller coaster ride than a higher rent property, especially if you manage yourself, as we do.

Michael S. · Answer

its was rehabbed 2 years ago. new hvac, wiring, plumbing, roof

prop taxs 765.05$ a year

tenant has been there 2 years. single mom with 2 kids. kept relatively straight for section 8. he said they never call him with problems to fix things.

Mehran K. · Answer

Quick 50% rule showing about $140/mo cash flow with that financing in place. Not bad.

Be sure to 
get an insurance quote, 
find out the actual property taxes
Are you going to use a property manager?
How do you know there is no work needed on the house?
What's the age of the roof, water heater, hvac, breaker box etc?
How long has the tenant been there, how do you define "good"?

Quick video:  The 50% Rule: How to Quickly Analyze a Multifamily Investment Property

Michael S. · Answer

financing - 21% down  
interest rate 5%
30 year

Michael S. · Answer

thank you for the reply. That seems a little too ambitious for my first rental property. I'm definitely wanting to keep things close to me. But maybe one day I will do something like that

SFR Possible deal?

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