Deal that Makes Sense in Number, But...

[Yafei Tang]

Hello Everyone, I'm a new member of the BiggerPockets. I'm also quite new to the real estate investing. After learning from the books and the podcasts, I decided to start to analyze deals and maybe buy my first rental property using the BRRR strategy.

After analyzing a dozen of properties in my hot market, I finally found one that's within my price range and makes sense with the BRRR tool on the BP website. It's a old house that has be on the market for over 10 months. Based on the pictures, it looks in quite good shape (structure wise). It has about 1000 sqft above ground space and a full unfinished basement with the same sqft. If we get it and add a bedroom and a bathroom in the basement, it will become a 4 bed 2 bath house. I have been quite conservative in the analysis but the result is still very promising. In the initial rental period, it will have over $400 cash flow per month and 12% cash to cash return. In the rehab period, it will have about $250 cash flow and 16% return.

Based on my limited experience, it looks like a good deal that I should go after. However, the location really makes me concerned. The house is located in a small town with about only 1,000 population. The town is surrounded by farms and the median household income is about $39k while the median house price is about $96k. This house has had price cut and we may be able to get it at around $60k. The town does have a hospital, high school, grocery stores and post office. It’s quite far away from where I live and I have never been there. But it’s in the same state. It’s about 20 to 30 miles away from two bigger cities. I used the lower end of prices as leasing price and after repair value based on the Zillow estimate. The problem is, will this small town even have people need to rent to buy so that these numbers will come true? There were some transactions in the past two years. But basically the houses were listed for a few months and had a few price cuts and eventually been sold below the asking price. I talked with an agent who knows the area on the phone. She currently has a new listing in that town and she sounds quite positive about the local market. She also mentioned that at least a few months ago, the house was occupied by tenant. So hopefully I can get more information about the renting situation from her tomorrow. 

What do you think about this deal? Does the size of the town matter? What other information do you suggest me to get from the agent?

Thank you very much for reading my long, first posting. I wish everyone find their amazing deals soon!