Acceptable cash flow to me depends on the amount of time & effort I’ll have to expend on the property. If it’s close by it’s easier and less costly to visit the property when there’s a problem. Also the lease you have in place can alleviate you of dealing with smaller problems, or getting paid extra to handle them. $200 or more is probably the minimum I’d consider unless I knew I could sell it in a year and make a very healthy profit. Then I’d give more now to get more later.
Looking to buy property, for rental, that is 850 sq ft two story, 2 big bedrooms, one bath, old brick house, (good structurally), crawl space basement, one car detached garage. Asking price 49,900. The place hasn’t been maintained well, severly overgrown lawn, inside needs cosmetic updating. This house is 1 mile from a major university, We have been looking in this area for that reason. Rent for 3 bedroom homes in this area is roughly $900 w/o utilities, so I figured we could charge somewhere around $700/month. Financing would have to be a 100% stated loan, don’t know the interest rate. According to mortgage calc, mort. payment would be around $350-380 @7.5%. Prop taxes will be $1100/year. What other costs do we need to consider. We are thinking of buying, doing minor cosmetic updates, and putting up for rent for the coming school year. Then possibly selling in a few years. Can this work, or will it be a money pit?
thanks,
Heather
Who will pay operating expenses? What repairs do you anticipate? How much will you need to put in reserves for the repairs and what does that leave you for cash flow. Is $49,9K below market where you’ll have some built in equity from which to possibly draw for repairs? It sounds like a great location for a rental.
Sounds like a deal to me. What state are you looking in?? - if I could find a property for $ 49,000 anywhere I would buy it. For that price, the numbers should work very well. Some other expenses to consider if you haven’t already is whether the tenant pay all utilities. Also, don’t forget to factor in garbage pick up, plowing, and lawn mowing if relevant.
Tenant would pay for electric/gas/phone, we would pay for water/sewer/garbage. Repairs include paint throughout, new kitchen cabinets/counter, appliances are good. I anticipate $1000-$1500 for supplies from local reuse center. This house has many limitations -no basement, small size, small lot and no room for addition, also doesn’t show well. For these reasons I wouldn’t say that 50k is far below market value, even though other houses in the area start at around 100k. As a rental however, these limitations won’t matter as much, and the price makes this a possibility. I did the Carlton Sheets cash flow analysis, which showed a positive monthly cash flow of around $100. Is this cutting it too close? The repair costs will probably come out of my pocket, unless I can somehow get some credits at closing.
In my opinion $100 is WAY too close for only one house/unit. Will the house show better once you make the improvements? Do you anticipate the house appreciating? Gas & electric should be in the tenant’s name w/a landlord agreement. Depending on where you live this is recommended so if they move out in the middle of the night you don’t have pipes freeze due to the heat being shut off.
The house will definately show better with the improvements. It has many charming features, but has been neglected, peeling faded paint, VERY dirty, ugly old cabinets, porcelain light fixtures with one bulb and no shade, unkempt yard. I did some comparables in the area, 4, more presentable homes of similar style, sq ft., bedrooms, lot size, (one even had only a partial basement) the average asking price is $114K. Barring that, I don’t think it is out of the realm of possibility that we could increase the value by around 30k by doing these improvements. What would you consider an acceptable amount of positive cash flow from a single family rental?