Build new or buy old for rental income

[Kim Kaiser]

New Here..

I am in the bozeman/livingston MT area.  A longtime close friend sent me to this forum.  We have been looking for deals in the area.  Here is were I am confused on what to look for.  Primary reason is for rental income...

 I search the foreclosures, fsbo listing for rental, multi use, commercial, etc.  I have taken these rental rates, and done the math on asking prices,,, and they are no where near a return.  this area is very very active, new construction going up everywhere,  recent article stated a 18.00 per hour wage minimum to rent, average rentals are 1100 plus for small places, big university nearby,  basically no such thing as a rehab for a steal,, area just so active, professionals are closely tuned in on "deals"  the area is small compared to big cities so hidden "gems" are more exposed to realtor investors with similarly interested investors....  so for example.. asking price   for new const condo,, 145k.  applicable rental rates would be in the 1200 a month range,, roughly 14,4 a year,, take out your interest and taxes,,leaves sound 11k,  interest on 20% down note, 10 yr, 4 %  is 14k note,,, which leaves you with negative CF... not to mention no return on your down payment.

We are in the VRBO markets at yellowstone.  My idea  was to build smaller homes in the scenic valley where we could put up smaller, one/2 bedroom cottages,, gross rents  are in the 200 a night rate for about 100 night season,  would be at least at good or better.. homes would be 700 to 900 sf.  more that one can be put on a track of 5 acres,,

my friend is very successful in RE.  and he explains none or very few of the big people do building and make it,,,, 

anyway, i think you get the picture,, build vs buy .  given the heavy activity, nothing sits out there long or not at all due to similarly realtor/investors with a tighter grip on market availability and the rents vs the purchase are all very similar to the example above,, so please explain where there value is,,

some sellers even tell you the gross rents, and they dont even total the 10% of asking, so explain how to make this work.