how tight do you crunch numbers?

Upon reviewing properties in Houston, I came upon two that I was comparing.

House one might sell for 90k and rent for 1100. This equates to .0122% purchase to rent value.

House two might sell for 75k and rent for 1000. This equates to .0133% purchase to rent value.

House two would also take a little less down and pay a little less in property taxes. Both appear to be in “fine” areas, while property one is in a slightly more desirable area.

If it matters, House one has about 300 more sq ft and about the same lot. Same number of rooms and garage type. Both homes appear to be in nice move-in condition but since this is just a hypothetical questions, let’s assume both props are the same and ready to go.

Howdy Evergreen:

To really compare two you will want to include the expenses as well. Figure the income less 10% vacancy and add in all the expenses including taxes, insurance, management, maintenance, reserves for replacement and come up with the net operating income (NOI). Now divide this by the price and you will get the capitalization rate (Cap rate). The higher the number the better the return but possibly more work as the lower income areas tend to have higher cap rates as well as more risky properties. Keep in mind if you borrow 100% of the purchase price at a rate higher than the cap rate you will have a negative cash flow.

LOL

yes and taking my example above, what if prop one comes in at a cap of 9.07 and prop 2 at a cap of 9.09

The cap on prop 2 is better by a tad. Would you pick prop 2 based on this number or then look at which property you rather have since both are coming out about the same?

At this point, the money no longer dictates your choice.

Pick the one you like best, or have the best gut feeling on. Or do something ratical, if you can afford it, and buy them both. ;D

Be sure that those rents are actually market rents and that you will be able to get tenants as those rates. If you are able to rent our houses at over $1000 that only cost 90k you are doing really good unless there is some major HOA fees or other expenses.