How could I make this rental property works?

General Real Estate Investing
1

I came across a property recently. It is a 3/2/1 townhome (1472 sq ft) in a ok area, and it looks like most townhomes are occupied in the area, so it may not be a problem to find tenants. Its list price is $89,000, and I would like to put a offer at $75,000. However, numbers don’t work well for me. Here is why:

Mortgage: $524 (100% finance at 7.5% of 30 yr fix)
Insurance: $50
HOA : $80 (per month)
Tax : $300
Total expense: $954/month

Rentals for this area are from $875 to $1000. Even if I get $1000 per month, I don’t have much positive cash flow. My best guess is that I may break even.
Am I right? I don’t think this deal work, and I don’t know how to make it work? Any input will be greatly appreciated.

Thanks,
JW

2

How is the appreciation in the area?

Also are you paying full value for the home?

3

Hi, Robb,

This is a little bit old area, and appreciation is not that good. The list price is $89,000, and the market value is somewhat around $89,000. This is a REO, and I try to buyit around $75,000, which is about 15% discount (by the way, there is not much repairs needed). But based on the number, I don’t think there will be much postive cash flow.

Thanks,
JW

4

Since you didn’t include maintenance or any vacancy factor I would agree with you that this is not a solid investment based on the numbers you provide. Seems that at best you’ll break even and more likely experience negative cash flow on a property that isn’t appreciating enough to offset that.

5

JW,

Based on your numbers, you did not provide for the cost of money. If this is not private money it could cost you close to 3 k to close the loan. That’s an other 21 bucks a month added to your mortgage that’s not in the calculation.

There will always be another condo. Don’t give up.

Jeff

6

just a thought. Could you purchase at said price of $75,000, do a lease option where you would ask for $5000-$7500 as a downpayment, rent at $1000 (anything under $500 per month fixed by tenant/buyer), and do a 2 year lease option to sell at $96,000. I know that it is a numbers game and the numbers could be manipulated to suit your purpose but if my thinking is correct, it could work.

7

Thanks Paul. I thought Lease Option is illegal in Texas. Someone please advise.

Thanks,
JW

8

I would not do a lease option right now anywhere. Texas or not!!! they are cracking down on them throughout the united states!

9

Lease options are getting tricky all over like REO said.

Here in Texas the LO is not illegal, the recent House Bill that was passed did provide language for exclusion of LO’s of 3 years or less. Ultimately though, it’s getting very tricky and if at all possible I’d avoid it or have an attorney with extensive knowledge of the recent changes effective Sept 1st review your plans.

10

JW offer lower and see if it sticks! Try to get it at 70-75% of appriased value!

11

Thank DFWHoldings for the valuable information.

Robb - I will try to offer 70% of the appraised value and see what happens.

Thanks,
JW