All Forum Posts by: Brandon Hall

@Bill Gulley thanks for the advice! I knew about guaranteeing the lease by having a parent sign it, but I didn't really think about the other qualitative factors.

Ingenious move by sending your wife to collect rents. I guess I'll have to get one of those too!

@Chris Adams This house is right next to two sorority houses and gets perpetually handed down to the next class. College girls tend to treat properties nicer than guys, but I agree I would need to factor in some sort of "rainy day" expense.

I doubt I could get more than $3,000/mo.

I'm confused on the details. What is the purchase price of the property?

Hey Everyone,

I found a house and would like some help with the analysis. I believe I am on the right track but I know there are some brilliant analysts on this site so please jump in an help!

The house is less than a tenth of a mile from central campus of a university with enrollment of 29,000 students. It is also less than a mile from the downtown area featuring bars and restaurants. The area experiences high rental demand and around 5% of homes in the area are owner occupied.

Asking Price: $337,900

5 beds, 3.5 baths, 3,743 sqft, built in 1953, heat pump, detached garage, new roof in 2007, sold in 2007 for $335,000.

Comps are valued at around $300k according to Zillow (I don't have access to MLS)

Monthly Rents: $2,500 - 3,000; Annual Average Gross: $33,000 rent

Property Taxes: $3,700

Insurance:$750

Maintenance & Repairs: $9,500

Other variable costs: 6% of rents

Vacancy Rate: 3% (College town - generally have 5-15 days before new renters move in)

Downpayment: 25%

Years: 30

Rate 4.35%

I am roughly estimating $5,000 in improvements though I will get a contractor to provide me with his/her estimate.

At the purchase price of $337,500, I am getting a cap rate of 5%, cash ROI of less than 1%, and an annual cash flow of $710.

Obviously these are horrible returns. At a purchase price of $290,000, I am still only seeing a cap rate of 6% and annual cash flow of $3,300 which is still not where I want it to be.

So is this market just bad for investing? I doubt I'd be able to get it below $310,000. How can someone purchase this house and be happy with those numbers? Did I do something wrong?

@Pam R. You can also check out the city's/ county's CAFR. It will give you all the necessary demographic and financial data of the city which will help you identify or confirm trends.

Columbus Ohio 2011 CAFR: http://auditor.columbus.gov/uploadedFiles/City_Auditor/Reports/CAFR/2011_CAFR.pdf

You should search "creative financing" here on BP.

Everyone needs a home. Remember, you are buying an income stream so for the right price anything can work.

Whiile I can't comment on the small towns part, I can attest to the fact that just because something looks cheap doesn't necessarily mean it's a good buy!

I've been reading about real estate, working with valuation models, and following the economics of it all for over a year, though only hardcore within the last six months or so. I think I have learned a lot, but I don't think any book can replace experience. I am lucky in that my parents invest, so I have been able to watch their processes and help with various items. Those moments have been priceless learning experiences.

Though I haven't done it yet, I think getting your feet wet will ultimately allow you to test your knowledge and rapidly build on what you know. And remember, if you are going to fail, fail fast!

I would also consider the time value of money factor before you decide not to sell the property. Money today is better than money tomorrow. Make sure you estimate the future value of the $20k minus taxes vs. the perpetual cash flow your will receive from the rental property. You will also want to look at various scenarios of what happens when you reinvest the $20k in stocks, mutual funds, more property, etc.