I would say jump on it but make sure you can get that $850.00 per month. Just curious though around here that price of house would only rent for 500.00-600.00. Make sure the person who is telling you how much you can get really knows his/her stuff and has rented in same area. Just my .02
P.S I still would not pay more than the appraisal cash flow or not
The big problem with low equity is that you may have trouble selling the property if things go wrong or you simply find that landlording isn’t for you. This is primarily a consideration if you are a new investor or a new landlord.
I like to have at least 30% equity in my rentals. This looks better to the banks and gives you a little more of a safety net.
It may or may not be possible to find a property with both good cash flow AND 30% equity in your area. If you can do a little more work and find a property with both, then I’d do so. If not, then this probably isn’t a bad first deal - not ideal, but not bad!
<<How much do you guys count on the county appraisal? >>
County tax appraisals are notoriously wrong. It’s my opinion that they keep them low and then just adjust the millage rate to garner what they need to run the county/parish. Here they are off by about 40-50%.
I am also of the opinion that, if you buy right and cashflow well, the appraisal doesn’t mean all that much. I do use a good strong professional appraisal for refi purposes and to set the tax basis for depreciation, though.
hey keith, what area do you invest in? i have only done so locally but hope to break away soon and try other parts of the country. i’m in michigan and in some areas you can actually find a half way decent house for $15,000. and rent it out 450-500, which is pretty good…i’m a little nervous to do this beacuse well… i’m a woman and would not be able to collect rent in those areas. they arn’t too dangerous but i definetly wouldn’t feel comfortable.
I am in NW Louisiana. The properties that I look for run between $40K and $75K. Homes in these ranges will rent from $600 - 900 a month once fixed up.
We only invest in our parish (Louisiana has “parishes” instead of “counties”) and never in an area that is even ‘dicey’. We won’t invest in an area where a woman would feel uncomfortable being alone at night. That said, there is money to be made in low-end property here, too. I can’t believe the rent that some of the landlords knock down in the 'hood…
Keith, these landlords in my area who work in Detroit (90% of the city is a warzone or worse) make a killing on cashflow. I used to live in a warzone area about 7-8 years ago. I lived in one of the halves of a duplex. My landlord paid $15K for it, in decent shape and rented each half for $450. I personally couldn’t see myself owning rentals in a warzone regardless of the money. But those that do, I sure can see why from a cash flow point of view.
I know exactly what you mean. We have landlords here that own literally hundreds of properties in the 'hood. They are really and truly slumlords. Part of this area are, per capita, some of the worst in the country! Maybe not as bad as Detroit, DC, etc., but per person nearly as bad and extremely dangerous. I’m not gonna chance it and certainly don’t want my wife (partner in everything) to be, either…