Buy and Hold in rural areas a bad idea?

Question

Hey, I'm looking at a SFH property right now that is being listed at 60k. It's fairly rural so I'm not sure how easy it is to find tenants out in those areas. An interesting thing is that the house must be sold along with another property which is listed at 80k also a 2/1, but it looks like both properties were passed on to a now married woman based on online deed info. So just from the sound of this does it sound like something people would generally have a double-take at? I know each house would have to stand on its own two feet when it comes to making an offer so when looking at it at first glance I figured I might be able to rent $500/month from each property (don't know anything about rural properties or their rent rates). Using the 50% rule I would have to offer 30k for the first home to cash flow almost $100 every month at that rent using a 30 yr loan... The second home if I bid 40k instead of their asking price of 80k i would still only scratch out $50 a month.... These numbers don't make any sense to me since even if i got the properties at half price, I would barely make anything. How do people even make money on SFH if they don't rent out the rooms individually? Don't even know right now haha

Sylvia B. · Answer

I think you need to do a bit more research.

• The properties are listed at 60 & 80, but you think you can get them for 30 & 40, simply because you can't make any money at a higher selling price. The seller might go along with that, but probably not.
• You don't know what properties in the area rent for, but assume you can get $500 for a 2/1. I live in a rural area, and I'd say that's unlikely. Unless it's very nice you'll be lucky to get more than $350.
• You have only $7k and want to take on 2 older houses that very likely need repair? Unadvisable.

If this is just an exercise to practice evaluating a potential purchase, then there is no harm done, but I wouldn't recommend putting any money on the line at this point.

Gavin Welch · Answer

Yates, it sounds like your on the right path. Have you thought about partnering with one of our local investors? Or a money person. Frequently, some money people would put up the cash and you could manage the properties for a 50% split. Ask around.. Just a thought.. Good luck.

Email me if you need more help.

[email protected]

Gavin

Email me if you need more help.

Gavin@thereloop.com

Gavin

Yates Snyder · Answer

@Gavin Welch Thanks Gavin, I've kept analyzing this property and I feel like I'm getting stuck on it merely because its the first thing I've came across and I'm new, beside the fact it just seems like it's special in some way. I'll give you my full logic, feel free to read or ignore it haha. I think you're right when it comes to reselling, but could be too risky when it comes to holding it. Heck it's all risky. But here goes b/c I'm trying to learn the math.

Even if I could get the houses for 30k (because i think it could be sold for 50k and 70% rule says I could only offer 35k, and it likely needs repairs being an older house, so realistically i should probably be offer only 25k max (its an older 1 story ranch with a semi rusty tin roof). The other house I would say it could sell for 60k I shouldn't pay more than 42k minus repairs. The house looks in good condition but has a strange fake rock siding which might make it hard to sell, but I doubt I would lose money If i bought it as is at 40k. With 25-30k and 40k I could probably only throw down 7k cash total (and that's all my money basically) on a down payment. Meaning with closing costs of 5k for each (i guess?) I would be in 75-80k, minus the 7k I can put down so I'd need a loan for 68k-73k right? Meaning my monthly mortgage would be $391.88 at 5% interest annually (73k loan). This means assuming 1k from both properties a month, I could expect only $108 from both... but comes your point about repairs, which I thought were covered in the 50% rule expenses? However, any repairs above that, yeah I guess I'd be in trouble. My mom is actually interested in one of the properties for living purposes so I could "partner" with her and let her purchase the 30k and I get the 40k. But I'll probably be best off just taking your advice and moving on for something with more cashflow, in a better area, and more typical style. I'd love to hold onto them and sell next year for a nice little spread, but I probably don't know enough to navigate safely yet.

Gavin Welch · Answer

That's not a lot of margin.. I like to either profit $500 a door or finance less than 50%. But i am very conservative. If the house was nearby you and you could keep a good eye on it. You might get by with the $100 per month cash flow then sell it in a year or so and make some dough that way. The problem is with $100 per month repair, you're going to be negative if you have to make any repairs or vacancies..

I like your train of thought.. You're on the right path.. However, I'm not sure if this is a great property for you unless you have cash reserves elsewhere.. Its too easy to go negative.

Good Luck

Gavin

I like your train of thought.. You're on the right path.. However, I'm not sure if this is a great property for you unless you have cash reserves elsewhere.. Its too easy to go negative.

Good Luck

Gavin

Buy and Hold in rural areas a bad idea?

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