All Forum Posts by: Brendan J.

Congrats on taking that first step. Many watch from the sidelines but never get into the game. Let success breed on itself and keep pushing further. I'd like to hear that "God" story as well!

Raj,

The purchase price looks good. We try to look for homes that have a gross monthly rent at 2%+ of the purchase price. Your's is 2.9%. I like that.

You seem to be skimping on the expenses a bit though.

$1600 / 2 = $800 (Do a forum search on the 50% rule)
$800 - $231.50 = $568.50 monthly cash flow ($285 per door)

$568.50*12 = $6,822 annual profit / $13,750 = 49.6% cash-on-cash return. 50% annual return is excellent. If you like the way the homes look, your numbers check out.

I'd do some more research on the boarded up and vacant homes on the street though.

Keep in mind that a HELOC is, by nature, a temporary and callable loan. Meaning that they could feasibly demand the full loan back at any time. Personally, I would be comfortable using a HELOC for short-term home flips, etc, but not for the down-payment on a buy-and-hold strategy. Just my $0.02.

Sorry Brian, but you're actually the one incorrect. Uwe has applied the 50% rule (55% in this case because he is being conservative), which includes vacancy. When using the 50% rule you apply it towards the maximum scheduled rent and let the division work its magic. You don't need to take vacancy off the top, and then work down.

Best of luck. Let us know if you win the sale.

Slim,

You've got the general idea of the 2% and 50% rules. Keep in mind though that we can't MAKE the 2% rule apply, the rental market in your area decides this for us. If the rents are already scheduled at $5,200 then you're good, remember you can't just decide $5,200 SOUNDS reasonable and simply raise rents to that mark.

I agree that you can take off some expense dollars by managing yourself, but I think you're setting yourself up for disappointment to think that expenses will only be 25% of gross rent. I think that 40%-43% would be slightly more accurate. That being said, I would still do my math on 50%, and if you want to make the numbers look prettier in real-life, so be it:

$5200 / 2 = $2600 monthly after expenses.
$2600 - $957 = $1643 ($200 per door)

$1643 * 12 = $19,716 Annual Profit
$55,000 (25% down on $220,000) + $40,000 (rehab) = $95,000 cash invested

$19,716 / $95,000 = 20.8% Annual Return

Honestly, it looks very good on paper. How sure are you of the rent price? How has vacancy been lately? Is there much deferred maintenance you would be concerned about after the $40,000 in rehab? Is this a warzone? Do you have the $100K required?

Slim, 20.8% is a very good return. Most people here would agree that 15% and above is when your money starts working for you. You've beaten that out comfortably.

If you like the way these homes look in person (something we can't do) I would say you could have a good opportunity on your hands.

Anthony,

No one here will argue the fact that you could make money with this deal. Your numbers are accurate, you could realize a 289% 15 year return on your money.

My and Jon's point is that there are people, in other parts of the country, that could make that number 700% +.

Profitable or not, it still isn't the best investment you could find. Have you looked at other areas?

Welcome to BP. It will surely give you a better knowledge of the requirements for successful REI. Best of luck!

Good Morning Anthony,

Just some quick thoughts.

Your initial cash outlay looks a little light on the closing costs and repair, and could end up being higher, but we will leave it for now.

The monthly numbers aren't factoring in several key expenditures. Change the math to:

$2,300 Monthly Rent
($1,150) Monthly Expenses
($1,008) Monthly P&I

$142 Monthly Cashflow

$1,704 Annual Return
2.7% Annual Return

This is honestly a pretty poor return. Sure its cashflowing, but the fact is that you could do much better with your money.

You are simply spending too much money upfront on that house for a $142/month return.

2% Rule: states that gross monthly rent should be 2% of purchase price (the higher the better).

Yours is only 1.2%. In order for this purchase to make sense, you'd have to purchase the home for $115,000 to $135,000 (between 1.7% and 2%).

This purchase price would get your annual return back over the 10% number. If it isn't possible with this home, move on to another.

I would want to be all in on this property for no more than $70k. If the property needs repairs (ex. 10k), don't pay more than 60k.