Would you buy at 1 1/2% rule in a non appreciating market?

Question

Hello guys,

I have an opportunity to buy a (what I think) fairly decent deal in a market that I could about bet on not appreciating much if any at all over the next 10 years. Here are the numbers. My question is, should I tie up my money and wait for something in a more appreciating market? Or pull the trigger? Should I use my money to leverage a loan on something more valuable and in a better market?

Purchase price $40,000. (Cash)

Tax assessed value $68,000 (normally low)

Rental income $600.00/month

Tax $651.62/yr

Insurance $450-50/yr

Water/ $40/month

Vacancy $50/month

Capex $50/month

Repairs $50/month

Roughly $300 a month in expense. $300ish cash flow.

This property is in a C neighborhood.

Please keep in mind this is my first rental. Go easy on me if I have missed some numbers. I’m thinking I could potentially brrrr this. But then cash flow goes to crap. Thoughts would be great!!

Thanks

Nate Monson · Answer

It looks like a solid deal to me as well. I think going back to your goals is smart to do. But if you have had trouble jumping in, in the past, this could be a nice one to start out with, and then think of your goals at a later date and figure out how this potentially good deal fits into that plan. Good luck!

Preston Quinn · Answer

@Jay Helms

As mentioned above Jay, I realized when that I don’t have a specific reason for rei. I guess the thought of financial independence is very appealing to me. But I have realized I need to do some soul searching and make sure I have my goals clearly written and reminded of them daily before I proceed.

Thanks

Preston Quinn · Answer

@Ryan Rominger

You know, asking myself what are my goals, just told me that I haven’t clearly identified what they are to myself. Thank you helping me see that Ryan.  I have some mental work to do.

Rob Hoffman · Answer

Is is possible to purchase at 1 1/2% rule in appreciating market?

Ryan Rominger · Answer

Hi @Preston Quinn!

This definitely depends on your goals. How long are you willing to hold the property? If the property is in an area that you believe will appreciate one day (arts district, natural appeal, etc) and will also produce positive cash flow, then I don't think anyone should fault you for taking that deal. However, if your goal is maximum cashflow you can probably do better on the monthly ROI, and if your goal is maximum re-sell value you would probably do better to buy in an appreciating area (or a path of progress). In the Indy market we are often able to help investors find BRRRR investments that hit the 2% rule or higher. It may be a different story in your market though.

Cheers!

Ryan Rominger | Indianapolis, IN | Property Manager, RE Broker

Tyler Northrup · Answer

@Preston Quinn I would just pull the trigger and get started.  Looks like it will cash flow and that's whats most important.  There will always be a better deal somewhere else. It can be easy to get stuck by over analysis paralysis.  I say go for it!

Preston Quinn · Answer

@Eric Schultz

I do plan on managing this property. I’ve spoken with a couple different PM and they’re telling me 7% in this area. So that’s another $45ish off of cash flow. This property for a brrr isn’t looking good if I had to pay PM.

The house needs paint and about 400 sq ft of carpet. I do have a good sub base of sub contractors from my construction background.  So I’d be looking at maybe $600 in carpet and I’d be willing to paint this size house myself probably another $3-400 in material. A little pressure washing and cleaning up. I’d say I can get it rent ready for under $2k. Cabinets and appliances all work as they should and are in good condition. Roof and siding was replaced 8 years ago. Bathrooms are good. Hvac was done 5 years ago. Water heater 1 year old.

It  last sold for $76k in 2005.  I’m thinking it’ll pull close to that now. Maybe around $70k. I had thought about as a quick flip also. Just don’t know how quick, quick really is.

Jay Helms · Answer

The answer @Preston Quinn depends on your goals and if you are asking this question, I have to assume you really don't know what your goals are. What's your WHY? Why do you want to be involved with REI?

Preston Quinn · Answer

@Rob Hoffman

I’m not going to say it’s not possible, but at this point I haven’t found any 2% rule deals. But I also have only been looking at my realtor’s pocket deals and what comes across the mls. I’m sure there are better deals out there. But none on the table for me at the moment. I haven’t started looking to far outside of my local market either.  Maybe I should. Thanks Rob!