I paid over asking, I feel dirty lol

[Mel Park]

I've had (2) rentals in Northern Virgnia for years and have been looking to add.  Anyways, I just bought my first townhome in Metro Atlanta (Acworth).   I paid $7,500 over asking price.   

NET of *all* expenses, management fee, maintenance, future maintenance - I think it's a realistic 3.5% yearly return and it seems like there is not a shortage of tenants, and rents have indeed risen.

3.5% is certainly not my goal in life....but I figured this is better than 1.5% that cash earns in low-risk accounts, so why not 3.5% in a low risk house. Of course, 3.5% ROI factors in zero appreciation and over the next 5-7 years, I'm hoping for a yearly appreciation of 4% and I hope that's realistic. My numbers, based on a 2 year tenant

$257,000 price WITH all closing costs.

$1,750 monthly  rent (Local PPM feels $1800 is a done deal based on comps)

$21,000 gross rent

-$2,100 PPM fee

-$2,300 taxes

-$1,700 HOA fee (landscaping, roof, siding they take care of)

-$900  yearly repairs (call the plumber, the heating guy, etc)

-$1,100 yearly accrual (eventual paint, carpet, new appliances)

-$400 CPA (I use $400 against each rental)

-$1,600 insurance

-$200 stuff I'm not expecting

-$1,750   (1 month vacancy, every 2 years, plus marketing costs)

$8,950 net profit / $257,000 = 3.48% ROI with no appreciation.

Yes, one can buy a share of Coke to make 3%, or a share of Chevron to make 5% but like all investments, things go up and down.  Furthermore, in a time of potential inflation and devaluing of money - I want part of my nest egg in solid bricks (or siding, in this case:).  Also due to depreciation my real estate companies legally on paper make zero profit......and that means that unto $78,000 in stock dividend income is tax-free.  It also means I can keep my income bracket low, and qualify for health insurance subsidies. 

I'd be elated with 4% appreciation.  It's hard for me to imagine my $250k townhome, being worth $300k one day but then I look at my average townhome in Northern Virginia - just 5 years ago it was $240k, and today it is easily $310k so who knows, that could happen again.

Questions, comments, insults, critique - all greatly appreciated 

[Kris L.]

@Andrew Kougl

I never understand why people use a % of rent for determining capex. It costs the same amount to put a roof on a 1500 sqft roof whether you charge 1,000 for rent, or 2,000 for rent. That’s true for most of the expensive things like HVAC and such. Only the cosmetic stuff seems like it would be directly tied to rent.