RE investment calculation to make decision

[Pete Tam]

Hello,

I came across a nice property in nice neighbourhood and I did my calculation but being a first time investor, I am little scared and want to run numbers by you guys to make sure I am in the right direction.

Here is my Goal before I put down all numbers here:

Goal: Buy and Hold property. Cash flow is my priority.

Property Price: $125K

I will offer to get it for $120K (max. $121)

Currently tenant occupied, rent is $1200 but as per market rate it should be somewhere about $1300 - $1500.

HOA: $130/ Monthly

TAX Summer: $1803 TAX Winter: $510

My Conservative calculation:

Rent: $1200 / month

Repair/Maintenance: $120 (10%)/month

Insurance: $120 (10%)/ month

Vacancy: $120 (10%)/month

TAX: $2320

HOA: $130/month

Loan payment: $462 /monthly (approx. considering $120 K price)

Could you guys suggest me if I should include any other expenses or just simply calculate 50% rule.

I'm looking it as a good first investment property, any suggestion?

Thanks for helping me to get my foot into RE investment world.

[Tom A.]

Originally posted by @Pete Tam:

@Mike D'Arrigo Yes, my calculation is showing me $55/month cash-flow too. Are you saying that I am calculating very low mortgage rate? Property is located in Michigan.

@Pete Tam, you mentioned your objective is cash flow. You can do much better in Michigan than the property you mentioned, without buying in a war zone or high-crime area. A $120K house around here is an owner-occupied house, typically. House affordability in Michigan is the opposite of California.

I saw a stat the other day that in suburban Detroit (excludes the city), a family earning the median income for our area can afford (using lending guideline of PITI < 28% of income) to buy 80% of the homes that were sold last quarter. In LA and Orange County, only 20% of the homes are affordable for a median income family.

If your brother is in the Detroit area, the most compelling rental homes are IMO in the first ring of suburbs around the city of Detroit. Your $120K will buy two $60K rentals that rent for $1000 - $1200 each. Or it could buy three $40K rentals, each of which would rent for $800 - $900. There are also suburban neighborhoods where you could get four $30K rentals but you start to get into a little higher hassle factor so I wouldn't point a first-time long-distance investor that way.

BTW, these inner-ting suburbs typically don't have HOA fees . HOA fees are not very common in rental neighborhoods around here.