How to check if a property good rental investment?

Question

I need some advice on narrowing down the rental properties. What is the return percentage acceptable and considered good?

For example:

I have a potential property that costs $180K. The HOA is $135. Property Taxes are $270 per month. Home insurance $100 per month.

The fair rent based on the area is $1500

I'm thinking to put the downpayment $50K

With a mortgage for 30 years and an interest rate of 3.8% at the end, I may profit about $400. Would it be considered a good rate of return or bad? Should I buy it or not?

Kenneth Garrett · Answer

180,000 purchase with 20% down ($36,000) for $144,000 mortgage with a payment of 671.

P&I   671

Taxes 270

Insurance 100

HOA 135

Total 1176

Add maintenance 5%, vacancy 8% not including cap ex

13% of rent 1500 is 195

Total cost 1371

Cash flow 129

Looks very tight, but could work based on business criteria.  I like to see a minimum cash flow of at least $300.  Your return on your 20% down is less than 1%.

This is why I like the BRRRR strategy.  Buy low, rehab, force the equity and get your money back out during refinance or at least with 24 months.

Good Luck.

Wakes Andre · Answer

Thank you @Kenneth Garrett for your reply. Very helpful.

Wakes Andre · Answer

Thank you for your kind reply. That's why I ask questions here. Unfortunately, your answer doesn't contain any helpful information either related to my question.

Wakes Andre · Answer

Great point. Maintenace and Vacancy rate of 5% each

Bjorn Ahlblad · Answer

@Wakes Andre you are leaving a lot of stuff out. There is nothing included in you numbers for vacancy, maintenance or capex. I don't know your investment criteria that property would definitely not meet mine.

Wakes Andre · Answer

Thank you, @Joe Villeneuve for your reply. Perfect point about the CF. If I put 20% down, which is the minimum I can, I will have about $300 profit. And it will take me about ten years to get my money back.

Joe Villeneuve · Answer

First, why are you putting so much down?

Second, the cash flow you get should be enough to quickly (see:  third) recover your down payment ...and then start profiting from the CF.

Third, the answer to your main question should be based on what your minimum requirements are...not anyone else's.

How to check if a property good rental investment?

Most Popular Reply