Rehabber · Orland Park, IL · Member since 2013 · 34 posts · 2 votes
I am looking to buy a rental unit in a 6 flat that was turned to condos. I did a mock wright up on CL to see if it would get any calls, and I am getting quite a few for a good price.
The only issue I have with this property is that I do not believe it will appreciate over time. But it will cash flow instantly around 200-300$.
Is this a good investment or should I look for something that will rent and appreciate?
Investor · Bellerose, NY · Member since 2014 · 108 posts · 34 votes
12y
@Ryan S. I think you would need to provide some more information to let people determine if it's a good deal or not. What is the purchase price? What is your out-of-pocket to get that $200 - $300 cash flow? Which is it, $200 or $300? All of these will help determine what your ROI is. How are you calculating that $200 - $300 (did you include all operating expenses such as insurance, interest, taxes, vacancy rates, maintenance, property management, etc)?
Investor · Bellerose, NY · Member since 2014 · 108 posts · 34 votes
12y
@Ryan S. I think you would need to provide some more information to let people determine if it's a good deal or not. What is the purchase price? What is your out-of-pocket to get that $200 - $300 cash flow? Which is it, $200 or $300? All of these will help determine what your ROI is. How are you calculating that $200 - $300 (did you include all operating expenses such as insurance, interest, taxes, vacancy rates, maintenance, property management, etc)?
I am looking to buy a rental unit in a 6 flat that was turned to condos. I did a mock wright up on CL to see if it would get any calls, and I am getting quite a few for a good price.
The only issue I have with this property is that I do not believe it will appreciate over time. But it will cash flow instantly around 200-300$.
Is this a good investment or should I look for something that will rent and appreciate?
I always assume that there will be no appreciation. So we invest based on cash flow and our initial equity position. This deal sounds like it cash flows really well, so I wouldn't back away just because you don't think the area will appreciate.
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
12y
@Ryan S. The details you provide are not sufficient. First, I assume you mean 6 unit. Are these studio apartments? Second, I would generally say that cash flowing $50 per door way too low. But third, you say this is $40K??? How in the world could you be getting so little cash flow from six units when you are only paying $40K? Or do you mean this is your down payment?
Just your lack of details tells me you haven't educated yourself enough to do this--probably. No offense intended. I'm concerned for you that that this is not just a newbie jitters, check my math, question. It sounds like you do not know what you are getting into. Especially with not even accounting for vacancy.
It might be a great deal. Maybe you are way under estimating cash flow. But better miss a great deal than speculate on something that will snare you into a financial mess.
Here is what would help:
How many units, of what type (studio, 1br, 2br, etc.)
Rehabber · Orland Park, IL · Member since 2013 · 34 posts · 2 votes
12y
@Larry Turowski
I have flipped 2 homes so far in this area, but this would be my first rental property. Im not sure how to figure in vacancy rate? I have learned the rehab side but am looking for help when it comes to renting.
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
12y
Ah, that helps a lot. However, I still don't understand how you can determine cash flow without knowing how you are financing? Obviously, your cash flow would be different if you held the house free and clear or if you are leveraged.
Aurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
12y
Yeah I was asking the leverage question for the same reason @Larry Turowski
mentioned it. If you've got 40k invested of your own money into the place then with $200/mo cashflow you're making 6% on your money. If you're financing 30k and making $200/mo then you're making 24%. That's a big difference.
Whether this could be a good buy really depends on the type of building and what your expenses might be going ahead. Is there a condo association? The quality of the investment can depend strongly on the strength and stability of the association. That can get hairy when you have a very small number of units.
Investor · Bellerose, NY · Member since 2014 · 108 posts · 34 votes
12y
@Ryan S. It sounds like you're in need of some better tools to give you the answers you're looking for. It also sounds like you're trying to move quickly. I would recommend against that because this is your first deal. From the little information that you're providing it seems like this particular property does not meed a basic 50/50 rule (from what I've been reading, your expenses NOT including any cost of money should be 50% or less than the rental income). Right there that should make you sit back and reconsider.
This tool will help you analyze your cash flow and your return on money, and it has different levels of detail that you can customize for your needs.
In addition, it seems like you're going to be paying for this property all cash and not financing, which means as @Jean Bolger said you're only going to be making 6% on your money, which is horrible for a rental property in my opinion. It looks better if you leverage instead (use the tool provided above to play with different financing scenarios).
Personally I set a return on investment goal of over 30% for my first rental property (which I'm working on now), so that if there are any major gotchas or expenses I didn't figure because it's my first deal, I could absorb that and still make a profit. And as a matter of fact, I DID make a miscalculation with regards to city sewer fees (they were monthly @ $45 per apartment for 2 apartments instead of quarterly, which is an additional $75 per month I didn't figure but it's ok because I picked a property that was going to give me 45% - 50% return on my investment after financing.
BiggerPockets also has a deal analyzer that you can use (limited to 5 uses I think without paying for a membership) under the Analyze tab above.
Also, I would not be concerned about appreciation on a rental if you're looking strictly at cash flow. If you can find something that appreciates, that's an added bonus but should not be the deciding factor in a buy and hold decision (although it can be a contributing factor).
I would like however to hear more about your flip deals that you successfully completed! That sounds exciting!
Investor · Allen Park, MI · Member since 2014 · 98 posts · 36 votes
12y
How are you only netting $230 on $975 rent? Might be helpful to show your calculations. Unless you have some high overhead via taxes or insurance in this particular area id say this could make for a pretty good deal, but if have to believe the profit is better than what your estimating.... You would be getting 2.4% in monthly rent for the purchase price which is very good.
Rehabber · Orland Park, IL · Member since 2013 · 34 posts · 2 votes
12y
@Joshua Nudell it would be extremity helpful for me to see someones numbers for an example. Would you mind sharing your numbers and calculations breakdown? I would love to see how you make up-words of 40-45%.
Real Estate Agent · Port Huron, MI · Member since 2012 · 295 posts · 82 votes
12y
Go to the below link and plug as much in as possible. Figure a 10% vacancy rate in. If you don't know things like taxes and insurance you need to get those numbers.
So far prior posts are right we don't have enough detail to help you analyze the deal. Without knowing your market specifically and just using your high overview numbers of 40k purchase price and a rental rate of 975 I would definitely look into this further. You have clearly beat the 2% and 50% rules.
Like some others have suggested I would highly recommend financing 80% of this deal if possible.
Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
12y
You could use the 50% rule (or 60% rule if you are paying for utilities) to determine if the investment cash flows. The 50% rule covers most expenses including vacancies; only mortgage principal and interest are not included in the 50%. Look it up on BP!
Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes
12y
@Ryan S. Personal opinion here, but I would have lost interest at the word "condo". HOAs are too unpredictable. Your profit margin can quickly get eaten up, plus some, just by little things associated with an HOA.