Okay, here's a quick primer on how to determine whether you have a reasonable rental property or not...
First, you want to start by figuring out two things that will be specific to this property: INCOME & EXPENSES
INCOME
---------
Your income is going to be (in most cases) just from the rent you are collecting. In your case, you say that you expect rent to be $800-1000 for this house.
But, don't forget that your property may not always be rented:
Vacancy: You're not going to have the property rented continuously; you'll need to find tenants when you first acquire the property and whenever tenants move out. Sometimes it could take a month or two or five to rent a place. You need to figure out what % of the time the property is likely to be vacant, and consider that loss of income.
Suppose that for your property, you expect it to be vacant one month each year, on average. If that's the case, your income is actually 11/12 of what your monthly rent is.
So, let's assume that for your property, you receive the best case rental rate, $1000/month, or $12,000 per year. But, with your 8.3% vacancy (one month per year), your income is actually $11,000 per year.
EXPENSES
------------
There are a lot of things that contribute to the cost of owning a rental property, and you're going to need to account for each of them. Here are the basic expenses you must consider (there are others, but this is a good start):
Property Taxes
Insurance
Maintenance
Utilities (often the landlord pays the water bill)
Upkeep (lawn care, etc)
Advertising (how are you going to find renters?)
Administrative (do you need a book-keeper, attorney, CPA, etc?)
Property Management (will you have someone else manage your prop?)
If you want to own a rental, you'll need to be able to determine what each of these expenses will be. Things like taxes and insurance are easy enough to find out, but about things like maintenance and administrative costs? Those take some experience to be able to estimate. Ultimately, you'll need to be able to accurately estimate those for your specific property.
For the sake of argument, let's be very optimistic, and assume that the expenses for your property end up being $4000/year. In actuality, they'd probably be closer to $4500-5000 per year for this place.
NET OPERATING INCOME
-----------------------------
So, you now have your income ($11,000/year) and you have your expenses ($4000/year). This is enough information to determine your net operating income, for which the formula is:
NOI = Income - Expenses
NOI is the amount of money you have left over after receiving all income and paying all expenses on your property. This is the money you have left over to pay your mortgage (also called debt service) and to provide you profit.
Let's calculate your NOI for this property:
NOI = Income - Expenses = $11,000 - $4,000 = $7,000
Your NOI is $7,000 per year, so you have $7,000 left over after expenses to cover your debt service and profit for the year.
CASH FLOW
--------------
Cash flow is the amount of profit you have at the end of the year. Cash flow is basically figure out as such:
Cash Flow = NOI - Debt Service
We already know your NOI, so now let's figure out your debt service. You say that you want the house to come down to a selling price of $110,000 and you also say that you only have $10,000 to put down as a downpayment.
Best case, you'll agree to purchase the house for $110,000, and your lender will allow you to put down 9% of the purchase price as a downpayment (making your downpayment $9900). Also, let's assume you pay no closing costs, and you get a great rate on a 30 year fixed mortgage -- 6%.
Your payments on this loan will be exactly $600/month, or $7,200/year.
So, now we have the info we need to calculate cash flow:
Cash Flow = NOI - Debt Service = $7,000 - $7,200 = ($200)
So, after all is said and done, you profit on this house is -$200 per year. That's right, you're losing $200 a year on this "investment." And that is assuming lots of very optimistic things, such as:
- High Rental Rate
- Low Expenses
- Low Purchase Price
- Great Mortgage Rate
So, as a rental, if you're looking for cash flow, this probably isn't the place for you...
Hope that helps!