What I’d like to do is buy a duplex or house with cash and fix it up enough to rent it out. If it makes money, then I’d buy more. (Subsequent properties would be financed, I just don’t want to finance the first one.)
One of the places I’m considering is a duplex in Westland, MI. Asking price is $8,900. (Gotta love Detroit prices!) It needs about $5k in work. Property taxes in 2011 were $2k based on assessment of $28k (in theory I could get the assessment lowered to about $5k based on the purchase price, but for now I’ll assume property taxes will stay the same). Rent wise, I think I could get $550 - $600 for each side. I plan on keeping the property at least 10 years; I don’t expect the property to appreciate.
I don’t currently plan on accepting Section 8, but I’m not against it. I just don’t think I want to bother with the inspections and bureaucracy that go with it.
Sounds good if your numbers are correct. I like your assumption of not expecting the property to appreciate. For duplexes or any other small multi-family property, it’s very important to figure out who pays which utilities. Many won’t have the water metered separately. Some may have electrical split out. You just have to check. It will seem like a good amount of work in the beginning to learn what you need to be doing as a LL, screening potential tenants, etc. After you set up your systems, it’s just replication from there. We didn’t accept Sect 8 in the beginning either, but we do now and have several Sect 8 tenants. You’re right, there’s some red tape there and added expense. The good part is getting that email saying the rent is being direct deposited into our acct on the first of the month. As you successfully run rentals, getting financing will become easier.
Good luck and post any other questions you have.
What are the market rents for this type of dwelling?
Would 50% of annual revenues be a confident projection for expenses for such a property in this locale/neighborhood?
If purchase is 8.9K and repairs are 5K, that’s 14.9K capital. Assuming 600x2x12, there’s 14.4K/yr / 2 (expenses) = 7.2K cash flow before taxes/ 12 = 600/mo cash flow. Assuming 20% post depreciation tax rate 600 x .8 = 480/mo net cash flow. Subtract 10% for vacancy and you’re down to 432/mo net cash flow.
The numbers appear OK but my decision would turn upon the location, vacancy rate and prevailing pricing. Could you go under market on rent and still make the numbers work? Say down to 500/mo?
I looked up listings in Westland, along with published vacant housing rates and housing distribution. Impressive that actual structures on land can be had that cheap. The dirt here in Cali is a magnitude above your price point. Good for you.
The assessed valuation puts the duplex in the 3.75% of total housing. Vacant housing (not vacancy rate but rather vacant SFH) is 7.18% as of 9/11.
I think this is one of those instances where really knowing the farm can pay off. If you do and can market it, I think you’ll do well. The other question to ask is the work of managing a 15K property to make 432/mo (using my simplistic numbers) worthy of your time and skillset? Only you can answer that.
Well, with the multifamily housing market quite improving and with a higher number of people and families are preferring to rent than to own a house, having to rent out as your investment is a good idea to start with.
Being a contractor I have done many renovations for landlord. This the way it works: landlord want to invest the least amount of $ and want to collect most rent possible. Obviously this is the way to think and to be successful. But understand too little investment leaves tenants to be ale to shop, choose and value a rental unit. Also many landlord cost of renovation may be considerably off.