It is a townhouse and brings in 7% ROI (after PITI,HOA,mgmt fee) versus money sitting in the bank at .5% interest.
Sometimes I want perfection and what I see here is it is in a college town, the rents are 1.5x the sales price
Someone said I should look for 2x the sales price.
My goal is to have positive cash flow on a 20 yr fixed and potential appreciation in 5 to 7 years.
Each deal like this I run across the nearest public schools are rated pretty low like in the 3s. Although, there are better rated private schools and other top rated public schools a little further away.
Should I be concerned about this or not as a 2nd time investor?
I was burned once in an avg. school area by one family claiming the new house had too many bugs & they were concerned for their kids safety.
If you have already done a cash flow analysis and get a 7% return on your invested capital with the financing available to you, then what is the problem?
Are you going with 20 year fixed because you get a slightly better interest rate? What if you get the 30 year loan, but make extra principal payments so that you retire the loan in 20 years?
In my limited experience, renters don’t look at the school system – they look at what is affordable. If your former tenants complained about bugs, you could have remedied that with a pest control service. More than likely, the safety issue was just an excuse because your tenants did not want to admit they could not afford the rent.
Rental property owners don’t buy a property, they buy the cash flow. Never buy a rental property expecting to make money on appreciation, or expecting to break even after taxes. Appreciation may never happen, and Congress always tinkers with the tax code. You can never be sure that tax breaks will always be there. Make your rental property purchase decision on the current cash flow the property generates. If the cash flow gives you an acceptable return on investment that is better than any other investment vehicle you are considering, then go for it.
Make sure your 7% ROI is accurate. Have you included expenses for, routine maintenance, capitol improvements (like a roof when needed), advertising (possibly included in your management fee?), cleanup between tenants (if you rent to college students you may have yearly turnover), pest control, legal fees, municipal fees (some towns require a yearly inspection and fee), and the big expense … vacancy. There are probably many more expenses I have not listed.
I think that you should move on to another property. The return on investment does not sound that high and there are variables that will make that 7% go down. As somebody else mentioned-vacancy. That is the one factor that many new investors lose out on.
Areas make a huge difference. Buy where the schools are good and people will especially look for homes in that school district.