Deal analysis

Hey guys and gals,

I am looking at my first rental property and I would like yall’s opinion on the deal. It is a small one bedroom house, it will rent for $500/month, FMV is 30k, asking price is 21k not a penny less, and repairs are less than 1k (just needs a good cleaning.)

They will not owner carry it and it is hard to find an institution that will lend that small of an amount. However I have found a guy that will personally lend me the money we just haven’t finalized the terms yet. I was thinking 10-15 yrs. at 8%-10%. What do you think?


You need to consider more things. How much expenses are there going to be? How much are taxes and insurance. If it is an old house, you have to consider what it will cost to make repairs as needed. You might go four months and not have a single probelm, then have a water pipe blow out and cause $500 in damage. You need to look at things like the paint, appliances, roof and carpetting. How much life in them? Will you need to repair or replace them anytime in the next few years? In that case you need to budget some money to take care of those things when they come due.

For instance, fairly typical numbers might be:

Rent $500
Vacancies (50) There will occasionally be vacancies, and need for advertising, loss of rental income during the vacancy, etc
Tax & Ins (75)
Maint (100)

= $275 available for mortgage

Most smart investors know that you need to expect about 50% of your rental income will be taken up by management and repair costs. Older properties maybe closer to 60%

10 years/10% payments are $278
10 years/9% payments are $266
10 years/8% payments are $255

15 years/10% payments are $226
15 years/9% payments are $213
15 years/8% payments are $201

So consider all of the numbers. But as you see, the longest mortgage at the lowest percent is better for you. Get as long and low as your private lender is willing to go.

To make this deal worthwhile, you need the payment to be $150 or less. Twenty years at 5.5% is close.


Property manager do you always use the 50% for total expensise? Someone says those numbers where obtained from appartment owners nation wide, I wonder if we should use them also in single-family houses?


Yes, I always use 50% for expenses. That is my experience with both SFHs and apartments. Remember, apartment buildings have economies of scale. Only one roof for a bunch of rentals; only one yard; only one exterior, etc. Do you really think that detached SFHs will have lower expenses?


no no just asking. Thanks

in this price range, yes 50% is a very valid number for expenses. That why I don’t like these small deals there is no money to be made ($9k equity is practical zero). I would buy a property like this if I could buy them in bulk (like 5 at a time or more).

I guess its not a terrible deal as you could own this place free and clear in 10 yr pretty easy and it would be a good first starter rental. Just know you are not going to really make an cash in the first few years foir your efforts

I would only pay 8% interest if you are putting money down; maybe 9% to care you all the way to 100%. I would drive a hard bargin becuase no one is going to get a loan on this small amount.