what am I missing? First deal numbers.

[Justin K.]

Hello all,

I have been doing quite a bit of research lately and am within a few months of pulling the trigger on my first property. My question is, here in Fort Wayne, IN there are quite a few homes around the 15-30k range that pull 450-600/mo in rent. The cap rates on these run above 10% every time I calculate it. These properties are downtown but not in the worst part of town. Why would I not pursue these types of the deals with the high cap rates?

Cap Rate
Net Annual Income	2868
Purchase Price	20,000.00
Cap Rate	0.1434

Annual Expenses	Rent
Taxes	312	5400	Annual
HOA	0	450	Month
Insurance	600
Management fee	540
Vacancy	540
Repairs	540
Mortgage	0
2532

Any insight would be great!

Thank you,

J

[Greg Carrier]

We do houses that are valued in the 50K range but our average investment is in the 35K range.  We can pull $700 to $725 a month up here in Northern Indiana.  The risk that I see is in capital replacement costs.  a roof is a roof regardless if rent is $450 a month or $800 a month.  Same with cleaning up between renters etc.  I know others who do those houses and I am sure it works, but expect repairs and capital and turnover might be a bit worse than other properties.  That's my two cents in any case.  Good Luck!