$17,000 House Do you think this is a good one?

Question

Here is what I am looking at a single family home which will be a cash deal $17000 and about $3000 to have it ready to rent. Management fee is 10% including tenant placement. $1350 a year taxes and $600 for house insurance. it should rent for $525. What do you think?

Steven G. · Answer

I don't like it. Your formula does not factor in maintenance (e.g. one big repair such as a new roof could eat an entire year's profits or more), vacancy, evictions, etc. And being only $525 a month rent, you're probably dealing with a lower income part of town (just guessing)....and those properties tend to be higher maintenance and also have higher tenant turnover. And also, the taxes seem a bit high for a property that's only worth $20k (could you get them lowered by protesting them with the county?) Personally...if I could get $700 /mo rent for it - I would go for it - depending on the neighborhood.

$6,300 - Gross Income
$1,950 - Ins/Taxes
$630 - Mangement
$3,720 - Income Before Maintenance, Vacancy, Evictions, Etc

$6,300 - Gross Income $1,950 - Ins/Taxes $630 - Mangement $3,720 - Income Before Maintenance, Vacancy, Evictions, Etc

Joseph Ball · Answer

Great comments and analysis. I would only add, even if you perform your own management, factor in 10%, because you might become disabled someday and have to hire this service.

Still, it is marginal, in my opinion.

Offer less!

Nicholas Jasmine · Answer

I definitely agree with this statement.

Kenneth Hynes · Answer

@John  Levora

never hurts to pass on a deal.   @Paul Ewing

does some good analysis above.  If you cant change the rent or taxes , you might try offering lower purchase price o increase your ROI.  All they can say is no

Paul Ewing · Answer

I just purchased a place this week for $20k needing $2000 or so in work.  The county has it valued at $25k and taxes are only $658/year and insurance is $380/year ACV $10k.  I will be renting it at $650-$700/month probably the lower unless I decide to put some more money into the refurb.  I am doing the management myself so I get to pocket the 10% I usually calculate for management fees.

The biggest drawbacks I see on your deal are the high taxes and relatively low rent.  It sounds like the county has the house valued a lot higher than its current sales price.  I would definitely try to get the valuation down closer to the purchase price if you are using it as a buy and hold.  Also what would it take to get the rent up to $600 or so?

Account Closed · Answer

I wish I lived somewhere that had $17K to $20K houses that would rent for $525 to $700. I would be all over that. Even apartments don't get that ratio per door.

Account Closed · Answer

@John  Levora  Will the tenants be paying all the utilities? You're already on the low end for what I would want to cash flow and a water or gas bill would really eat into that.  Is there any way you could manage the property yourself to save an extra $630/yr

I agree with @Paul Ewing on the property taxes. Get those down, raise your rent 50 bucks a month, manage it yourself and it looks good.

Frankie Woods · Answer

I also agree with @Joseph Ball !  Sometime's the hardest part is walking away because you want a deal sooo bad.  But, never never force a "deal".  It will burn you in the end.  At the same time, don't look for the perfect deal either because the problem with those is you might only find one in a lifetime.  Those base hits are were most of the successful R.E. investors make their money.  Good luck!

Joseph Ball · Answer

I would rather lose sleep over a house I didn't buy, than lose sleep over a house I bought.

$17,000 House Do you think this is a good one?

Most Popular Reply