found a property needs no work at the moment is fully rented.
Sale price is 39k
Total rents are 925 per month can be raised another 50-75 total.
Taxes and water are 130 per month combined. The rest the tenant pays for.
Property management 10%
Comps are coming in the low 40’s. Would you pay 39k for this duplex?
Wrong question.
Does the property generate your desired cash flow? Are property values in the neighborhood stable, increasing or decreasing? What is your exit strategy for the property? If anybody on this board answers that question, you get their opinion colored by their objectives. That’s not an evil thing, but just the way it is.
It’s your money, if the property meets your criteria, buy it. If not, move on.
For rental property analysis, I recommend a book by Fank Gallinelli “What Every Real Estate Investor Needs to Know About Cash Flow”. He gives a step by step approach for analysing the numbers for rental property.
For determining your objectives, I recommend Gary Keller’s book “Millionaire Real Estate Investor”. Gary offers rules to live by for the investor who wants to make and keep a Million not programs, tips, trips or secrets.
Hi thanks for the reply and help. I did post the question in that way because I wanted some very opinionated and colorful answers I like to see what others ideas are and what they look for when they look at a deal. For myself the property works. I am not a flipper although I may do an occasional buy rehab and sell. I like to hold for passive monthly rental income fo rainy days.
dwj469,
This is a good cash flowing property. I like it! The only problem I have with it is paying nearly full price. IF the rent is $925, then you should be able to get $925 for any comparable duplex. With a little work, you should be able to find one below 70% of the market value (and then subtracting repairs needed). So, although this deal is a good cash flowing property, you should be able to do better if you put in a little work. If you buy at retail, you will have a hard time selling. Most successful landlords will want a wholesale deal, not a retail deal. Additionally, the market is headed down in most areas, so the market value in the low 40s may not hold up.
Mike
Hi propertymanager, thanks for the help. I have comps ranging from 40k to 60k so its near full price. It does cash flow pretty good and I do intend to keep it for awhile for monthly cash flow if I were to go into the deal. Property appreciation is projected to be about 8% for the next year where the property is. The big appreciation that hit most areas did not hit this area so its been stable and is on the upward climb. All in all even if I can sell it 5-10 years from now for the same Price I bought it wouldn t it bo good? I would be making money by cash flowing each month.
dwj469,
Two points:
-
I don’t like the fact that you don’t KNOW what this property is worth. If you had done your homework, you would know whether it is worth 40K or 60K. If it were worth 60K, I would consider this to be a very good deal! The fact that you don’t know sets off alarm bells for me.
-
You didn’t answer my point about buying at retail. The question isn’t whether this is an acceptable deal, the question is can you do a little work and get a much better (and safer) deal. Again, it depends on the value of this property. If the value is $40K, then you can do a lot better. If the value is $60K, then I like it! A $20K question about what the value of a $40K property is unacceptable.
Mike
Hi responses below
Two points:
-
I don’t like the fact that you don’t KNOW what this property is worth. If you had done your homework, you would know whether it is worth 40K or 60K. If it were worth 60K, I would consider this to be a very good deal! The fact that you don’t know sets off alarm bells for me.
The comps I am getting are as I said 40-60k. There are a lot of comps. The lower comps of course are properties that need work. This property I am looking at needs no work except for basic maintenance of course. If I were to sell this property right away I would market it for 49k. An in between number and I believe it would sell quickly especially if I was creative. Not to mention the fact that there are many out of town investors gobbling up properties in the area. -
You didn’t answer my point about buying at retail. The question isn’t whether this is an acceptable deal, the question is can you do a little work and get a much better (and safer) deal. Again, it depends on the value of this property. If the value is $40K, then you can do a lot better. If the value is $60K, then I like it! A $20K question about what the value of a $40K property is unacceptable.
I do understand this. Last month I purchased a 2 unit for 29k put 5k into it and now it is worth 60-70k. I will be collecting 1300 per month rent minus all expenses of course. Again thanks for the response and great help.
Don
Mike
Beyond the valid points of buying wholesale vs retail which you should definately follow.
How old are the two biggies:
Roof? How many layers?
Furnaces?
If your town has a housing commission be sure to check and make sure that there are no housing violations pending against the home.
How long has the home been on the market?
Why are all other investors passing on it if it has been on a while?
Typical exceptions: are a recent price reduction? A change in owner motivation for selling?
How many other homes are on the market like this one?
Were you told that rents could be higher, or did you call all for rent signs around the property and interview the owners?
I always interview owners around my purchases to find out the true way of the market.
How many homes around this one are rentals?
These are just some of the questions that I ask myself before buying any rental.
Eric Medemar