I see your 50% rule but honestly, I want to hear from someone in doing that in higher priced markets, not smaller cities with low priced housing. I live in a city where homes go for $200-500 a sq ft. even rentals since many duplexs and more are sold for land value alone because of all the building and tear downs to build townhomes.
I been in this for awhile and know very few people from REIA meeting that can manage to find a rental this way because the rehab dollars break you away unless your putting down about 50% of the purchase price on a unit at 60cents on the dollar… Buying at 50-60% is doable however in all markets.
Here is an example… rehabber i had an offer accepted…plan to seller finance it when done.
Asking price 275K, offered 175K, seller accepted 182K plus paying 2% of closing cost. (they sold low b/c of a divorce and I know someone who lives on block and told me the wife would take 180K to get rid of house and husband)
Rehab will run about 10K mostly cosmetic work and update 1 bathroom
House will appraise for 330K when done and even in current condition really.
Now lets see, a 195K mortgage since I roll rehab into it will cost on a 30yr I/O 1800 a month. taxes are $320 month and ins 300 month. Thats is a PITI of $2420 a month. Add $80 a month for lawn care and I am at $2500 with no other issues.
Now I am getting house at 60cents on dollar basically which is great.
But house will rent 1200-1400 month on section 8 depending on which program as we have 3 in my county or 1200-1500 month for regular rental.
SO negative cashflow is $1000 a month min. but can run $1500 a month…
So will I rent it nope. I will complete the rehab, advertise it for 280K and settle around 250-265K on an offer. To sell you need to price it on the bottom 10% in the area even rehabbed. Get a contract for at least 260K, and tell seller I will carry 20% back at 10%. Pay off my loan and walk away with about 15K and then have a seller 2nd for 45k est. Either carry note or most likely sell it to investor for 25K in this market. And still make 40K profit in 2-3months on the rehab…
See even in my market, can not make money or cashflow…so the rule can not apply everywhere even on low end buys which this is. This is a home in a starter neighborhood. Just impossible. Or I can use equity to carry home of negaitve cashflow and wait for appriecation or sell at 300K+
So Mike…what do you recommend in high markets like mine… Do you have a better strategy for me b/c I am ALL EARS…
If follow your rule with the avg rental rate on a 3/2 at $1300 a month, then I need my PITI at 650 month so that would be a 65K home tops… Not in SoFl