Would you purchase this house as a rental?

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Investors,

Looking at one of my first deals. Let me run you through the numbers and get your opinions.

Property: Needs very little work. Small paint, new appliances in the kitchen and that is it. Foreclosure, listed around $155,000.

Agent thinks price will come down to more $145,000-$150,000 range over next 30 days.

I am walking through property this week. Already drove by and walked the lot. It is a 3 bed 2 bath, solid curb appeal. Small backyard unfortunately, oddly situated on the lot. Good curb appeal though. Looking to make an offer in the $135,000 range.

Based on comps, this neighborhood is 3 blocks from where my family lives in now, so very familiar, will be $1750/month in rent.

Plan on having tenant pay all utilities, or I will pay heat/hot water.

Probably put about $5000 into it to freshen it up, make it pop.

Assuming 4.75% mortgage, insurance, taxes, utilities (trying to avoid all), I think it will cash flow $350/month.

It will be easy for me to manage given the location. Neighborhood is a starter home community.

This does not meet the 2.0% rule...but I think my projected rent of $1750 / all in costs of $135,000 plus ~1.5% closing costs, plus $5000 renovation = $142,025 = 1.23%.

I think thats a pretty attractive yield for my first time flip. Estimating about a 20% cash on cash return (assuming 1 month vacancy to rent out, $500/annual repair/reserves)

I haven't seen any properties (YET) where I am going to hit 1.75% - 2.0%.

Thoughts?

[Bryan H.]

Not going to question the property and the rents, just your math.

purchase = $135k

20% down = 27k

mortgage @ 4.75% = $563

50% rule = 1750 x 50% = $875

$875 - Mortgage = $312/mo x 12 mo = $3744

Cash invested $27k + $5k (fix up) = $32k

ROI = 3744/32000 = 11.7% (much less than the 20% you projected)

Yield = 1750/142000 = 1.2%

Without seeing the property, I will honestly say a $135k REO will need much more than $5k to get it ready to rent at $1750