Turning Current House Into Rental Property

[Rufus White]

Hello, I am currently new to BP, but have been listening to the podcast for several weeks. My wife and I currently live in a nice neighborhood in a 1200 ft 2 bedroom 1 bath, on about a third of an acre. We have about 10k in equity in this house, and the mortgage is only $540 a month. Wife purchased the house for 87k 2 1/2 years ago, and we had a real estate agent quote us a 100k property value. Currently  We are considering moving to a larger house, and making this house our first rental. Rentcafe.com states the average rent charged for a house this size is $840 a month. Any thoughts or advice on this, or book recommendations? We would be moving into a house that’s is currently selling for $170k, but would be a live in fix. Currently compa in that area are valued for $200k +. 

[Milton Rivera]

@Rufus White

Looking at some of the key numbers:

Mortgage = $540/month (I am not sure if this includes taxes and property insurance).  I will assume they are included. 

Potential Rent = $840

Estimated expenses = Property management 10%, Vacancy 10%, Repairs/Maintenance 10%, Cap X 10%

$840-(property management)-(vacancy)-(repairs)-(capx)

$840-$84*4=$504 (total revenue)

Cash flow = total revenue - rent = $504-$540 = ($36), looks like you would be loosing money every month. 

In South Carolina, you also have to be mindful of taxes.  Investment properties pay about 3x the taxes which kills most of the deals.   

You can choose to do the property management and hope the repairs are not needed but it does NOT look like a prudent deal.