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tigersfan1989
LSU Fan
Member since Oct 2018
838 posts

Property Analysis - Potential Rental
I’m in the process of learning what’s a good rental vs not good. Here’s a scenario I’ve run across and want real estate investors opinion. If it’s not a good investment tell me the reasons.
Condo
Purchase price:115k

Annual rent 12k

HOA 1500
Prop tax 1000
10% assumed expenses from gross rents 3700
Homeowners insurance (guess) 1200

Annual net 7k

Assuming a cash purchase is this a good investment or not? The estimated appreciation will prob just follow inflation im guessing
This post was edited on 5/4 at 4:44 pm


Paul Allen
Notre Dame Fan
Montauk, NY
Member since Nov 2007
67472 posts

re: Property Analysis - Potential Rental
quote:

The estimated appreciation will prob just follow inflation im guessing



Don’t be so sure of that. It really depends on what the area and neighborhood comps are doing.


tigersfan1989
LSU Fan
Member since Oct 2018
838 posts

re: Property Analysis - Potential Rental
The area has been stable the last 15-20 years. Not saying it cant go to shite but it's not going to shoot up in value.I don't expect it to turn into the dumps.
This post was edited on 5/4 at 5:02 pm


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MrJimBeam
New Orleans Saints Fan
Member since Apr 2009
5756 posts

re: Property Analysis - Potential Rental
Is it a good purchase if it’s not a cash purchase?

To me it’s on the lower end of comfort level but I also wouldn’t throw 120k at a house grossing 12k, netting 7k a year annually. One roof, one ac unit, etc blows everything up. How new are all the big expenses?
This post was edited on 5/4 at 5:15 pm


jimbeam
US Army Fan
University of LSU
Member since Oct 2011
71349 posts
 Online 

re: Property Analysis - Potential Rental
quote:

10% assumed expenses from gross rents 3700
Double this

10 for CAPEX
10 for maintenance/damage


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Ramblin Wreck
Georgia Tech Fan
Member since Aug 2011
3173 posts

re: Property Analysis - Potential Rental
quote:

To me it’s on the lower end of comfort level but I also wouldn’t throw 120k at a house grossing 12k, netting 7k a year annually. One roof, one ac unit, etc blows everything up. How new are all the big expenses?


I agree, I consider lower cost commercial properties periodically and always walk away after telling myself the same thing. The potential risk to reward is just too low. You really don't bank enough in profit to cover big ticket items or to cover a note if you lose a tenant for an extended period of time.


The Melt
LSU Fan
Metairie
Member since Apr 2018
961 posts

re: Property Analysis - Potential Rental
quote:

I agree, I consider lower-cost commercial properties periodically and always walk away after telling myself the same thing. The potential risk to reward is just too low. You really don't bank enough in profit to cover big-ticket items or to cover a note if you lose a tenant for an extended period of time.


It seems like anytime a rental is brought up on this board, it is always discouraged. I have yet to see anybody say anything positive regarding rentals leading me to believe nobody on this board actually owns any rentals. If the proposed rentals aren't good enough, I'd like to see a few metrics on what people own and where/how they found the deal. According to this board, most rentals won't cover expenses (or make enough profit) but somehow millions of rental properties are owned across the country many of which I presume make good money (at least the ones my friends have).

I'm not trying to be sarcastic or a dick. I'd just like to see actual numbers for actual rentals that work out as suggested by this board.
This post was edited on 5/5 at 12:21 pm


rocket31
Toledo Fan
Member since Jan 2008
37868 posts
 Online 

re: Property Analysis - Potential Rental
quote:

Annual net 7k


not even beating stable coin interest with zero headaches

ngmi


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03
Rust Cohle
Baton rouge
Member since Mar 2014
1465 posts

re: Property Analysis - Potential Rental
6-9% return is something you might could get in an index fund, but plenty of people on bigger pockets buy these numbers. They like the 2% rule, but most are happy with 1%. So if you buy a house for 115k rent is 1,115. You have to know the elevation for flood, it might be 1000 or 5000 if below bfe.

You could get leveraged and buy 5 houses and your returns would double.
This post was edited on 5/5 at 8:38 am


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Ramblin Wreck
Georgia Tech Fan
Member since Aug 2011
3173 posts

re: Property Analysis - Potential Rental
quote:

It seems like anytime a rental is brought up on this board, it is always discouraged. I have yet to see anybody say anything positive regarding rentals leading me to believe nobody on this board actually owns any rentals. If the proposed rentals aren't good enough, I'd like to see a few metrics on what people own and where/how they found the deal. According to this board, most rentals won't cover expenses (or make enough profit) but somehow millions of rental properties are owned across the country many of which I presume make good money (at least the ones my friend's have).

I'm not trying to be sarcastic or a dick. I'd just like to see actual numbers for acutual rentals that work out as suggested by this board.


I think we tend to forget that sometimes people may be just starting out and take a little higher risk. The first properties that I bought would definitely not fit the Dave Ramsey model. A friend of mine and I went in together and bought a couple of old houses next to each other in an area where it was common for them to be used as offices. Two houses, three office rental spaces between the two. One current tenant and two empty spaces. We each took home equity loans to make the down payment. Yep, pretty risky and maybe not the smartest move. I'm sure our wives didn't like the fact that we were each paying off home equity loans and having to contribute to cover the purchase note for a while out of pocket.

Moving forward about 15 years, after learning a lot and selling those and a few others, we now own $2.4M in commercial real estate and I personally own another $1M in rental properties. Everyone has to start somewhere and not every investment has to compete with buying Amazon stock.
This post was edited on 5/5 at 9:06 am


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MrJimBeam
New Orleans Saints Fan
Member since Apr 2009
5756 posts

re: Property Analysis - Potential Rental
quote:

It seems like anytime a rental is brought up on this board, it is always discouraged. I have yet to see anybody say anything positive regarding rentals leading me to believe nobody on this board actually owns any rentals. If the proposed rentals aren't good enough, I'd like to see a few metrics on what people own and where/how they found the deal. According to this board, most rentals won't cover expenses (or make enough profit) but somehow millions of rental properties are owned across the country many of which I presume make good money (at least the ones my friend's have).

I'm not trying to be sarcastic or a dick. I'd just like to see actual numbers for acutual rentals that work out as suggested by this board.


For someone just starting out, you definitely want a higher cash flow property if you really plan to expand to numerous more properties. If you are someone just wanting to buy 1 or 2, sit on potential value increase more than anything, then I get it. It depends on your goals. Some don't have time to deal with a lot of RE.

Here's are two examples of SFH property I got into.

Property 1

Cost: 90k
Rehab: 30k
Loan: 120K
Implied value after rehab: 140k

For me, since my business mortgage allows 15% down, the implied value was taken into consideration when buying the property, so at closing, all I had to do was pay closing costs. Did some rehab myself and some contracted out. Gained 20k in equity, no money down. I also rent it out for 1600. It's not a neighborhood that's gaining a lot of value year over year, but I have never had a vacancy in a handful of years.

Property 2:

Bought 130, appraised 138k (thankfully)
Down payment and closing 15k, but house was turnkey. Rents 1700.

Both houses are Flood Zone AE so that's a decent expense. One has new roof and completely updated inside. A/C probably next big expense but in good shape. Other house brand new appliances and A/C, water heater, updated completely. New siding. Just needs new roof in next 5 years.

Two different situations with one being a rehab with less down and another turn key with less headache and more down payment.

That's the kind of return I look for. Everyone is in a different financial situation, but truthfully if I could, I'd go back to college and buy a duplex and live in one side and rent the other to start. Or even just buy a house and rent a couple bedrooms to help cover the mortgage.


jimbeam
US Army Fan
University of LSU
Member since Oct 2011
71349 posts
 Online 

re: Property Analysis - Potential Rental
Those are good rents for the purchase price


MrJimBeam
New Orleans Saints Fan
Member since Apr 2009
5756 posts

re: Property Analysis - Potential Rental
Yeah make a good bit off the top after PITI, close to around 400 a door on a few in that area.


Athletix
Houston Astros Fan
:pels:
Member since Dec 2012
4950 posts

re: Property Analysis - Potential Rental

Here’s the numbers on your property.
5% maintenance
5%vacancy rate
10% property management.

Imo this is no where near enough meat on the bone to deal with the potential downside of things breaking and potential poor tenants.

CDS rental calculator on the App Store is where this image is from. Free and a damn good calculator.

I think rentals are a great investment. Just not what you posted OP


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Athletix
Houston Astros Fan
:pels:
Member since Dec 2012
4950 posts

re: Property Analysis - Potential Rental
quote:

I have yet to see anybody say anything positive regarding rentals leading me to believe nobody on this board actually owns any rentals. If the proposed rentals aren't good enough, I'd like to see a few metrics on what people own and where/how they found the deal.


Bought June last year








Bought off the MLS. Did the work myself outside of the roof and some finished painting. In a flood zone so extra 1000 a year on insurance.

In the process of doing a cash out refi. Appraisal came in about where I expected at $110,000. Getting 70% LTV at 3.75 for 30 years. The numbers are still good and now I have no cash left in the deal. Actually pulled a few grand extra out. Only risk now is a 77k loan at 3.75 for 30years.

Now it’s about trying to save up and not deal with the bank on the front end. If the deal is good may just do a quick 401k loan to avoid all the closing costs. Can always knock a refinance out in a year.
This post was edited on 5/5 at 10:53 am


The Melt
LSU Fan
Metairie
Member since Apr 2018
961 posts

re: Property Analysis - Potential Rental
Athletix

MrJimBeam

Ramblin Wreck

All very good insight and information. I'll be using that app for my future evaluations.

Thank you
This post was edited on 5/5 at 12:26 pm


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jimbeam
US Army Fan
University of LSU
Member since Oct 2011
71349 posts
 Online 

re: Property Analysis - Potential Rental
That maintenance looks low. $600/yr?


K E V 8 4
LSU Fan
Member since Jul 2010
532 posts

re: Property Analysis - Potential Rental
quote:

That maintenance looks low.
For a condo, the low maintenance might be reasonable, assuming condo HOA is on hook for roof and exterior. However, I was thinking the HOA looked very low so maybe that's not the case!


tigersfan1989
LSU Fan
Member since Oct 2018
838 posts

re: Property Analysis - Potential Rental
Thanks for the feedback this is the kind of info I was looking for. So this property has a 6% cash on cash return which apparently isn’t high enough. I’ll continue to look around for higher cash flow deals. What am I looking for as a target? 12%? 20%?


Athletix
Houston Astros Fan
:pels:
Member since Dec 2012
4950 posts

re: Property Analysis - Potential Rental
quote:

That maintenance looks low. $600/yr?


It may be, I just used 5% which I got from the internet for a newly remodeled house. I fixed damn near everything when remodeling. New roof, new plumbing, new appliances. AC is about 10 years old, so when that goes it’ll skew that $600 a year for sure.

I’ll do the repairs/maintenance myself, so costs will be relatively low compared to most.




quote:

Thanks for the feedback this is the kind of info I was looking for. So this property has a 6% cash on cash return which apparently isn’t high enough. I’ll continue to look around for higher cash flow deals. What am I looking for as a target? 12%? 20%?

It really all depends. But, the market returns 7+% historical, so it has to be more than that.
This post was edited on 5/6 at 7:05 am


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