First rental property in small town 3.5 hours away

[Jessie Harrison]

I have my first rental property under contract, which is a SFH and a duplex (one floor of the duplex is completely gutted). However, the property is 3.5 hours away from my city of Houston in a small town of northeast Texas. Recent internet searches of the economy of this town point to the underwhelming economy, which is heavily tied to oil and gas. I realize this may sound like a bad deal, but I purchased the property for $55k (conventional loan, 20% down) and it needs about $20k of improvements to get 2 of the 3 doors ready for rent. Given that my mortgage, taxes, and insurance will be less than $600/month, I feel like this property could cash flow very easily if occupied (one unit could cover all expenses). Estimated cash flow of $400/month (including property management fees). Cash on cash return would be around 13%. That's better than S&P500, but is that too weak for real estate?

However, this small town has a high level of rental inventory on the market because it's once rapid growth and now weakened economy.  Should I walk away from this investment or take the chance and be in good shape if I can get it rented? I am so excited to have my first rental property, but maybe I should wait to find a better option. Your advice is much appreciated.

[Andrew Taylor]

@Jessie Harrison it sounds like you already know the answer to your question. If your Spidey-sense is telling you the local market is over-saturated with rentals and the economy is trending down, then it really doesn't matter what the pro-forma numbers are telling you, does it?

I know you're excited to have your first deal in the works, but don't get blinded by the thrill of the deal and lose sight of the fact that the point is to make money. If there's too many rentals already, and the local economy is flagging, what does it matter if you complete even a killer rehab and then add your offering to the mix? You'll have the nicest deck chair on the Titanic.