Townhouse, It’s a good investment?

[Fernando Rodriguez]

Sale price 65k, rent $800, VA 0% down payment, cash flow $200, cash flow w/factor $50 including property manager. Really slow area. Average price for similar Townhomes on the areas over 75k. A lot of properties on sales here in Enterprise, Alabama. I've been looking and studying different deals and they're al pretty much the same on cash flow.

[Cristian Aviles-Morales]

Okay, on a napkin try to answer these questions:

Purchase Price: 65,000
Cash to Close: ?

Rent: 800

Property Tax: ?

Insurance: ?

Property Manager: 50?

Mortgage Payment: ? (This would be higher if you do 0%. Use BP's mortgage calculator and a conservative 5% interest rate)

HOA: ?

Vacancy (10%): 80

Repairs (5%): 40

Cap. Exp. (5%): 40

Total Expenses: ?

Now if you subtract your income from your expenses, what is your real cash flow per month? 

That answer will tell you if its worth pursuing or not. I financed with the VA with my personal property and I regret it because that mortgage payment is higher. But at 65k it shouldn't be too crazy.

[Fernando Rodriguez]

@Cristian Aviles-Morales Cash to close $2,000, no HOA. On those $50 cash flow w/factor, insurance $75, vacancy factor 10%, maintenance 10%, tax $54, property manager $80, all this it's included. I can probably work the numbers and somehow make those $50 cash flow even duplicate (managing the property by my self & thats $80+) I can also negotiate prices. I'm going to live on it for at least 1y and I'm going to try to fix it or make it prettier, but I'm aiming for the worst even knowing that's probably going to be a better deal. I'm a little bit scared cause it's my first house plus the market it's really slow here in AL. About 6 more Townhouse are on sale on that area.

[Edward Liu]

What is condition of the townhouse?  How much to put it in to fix it and make it rentable?  If you are from AL, then you know the local area better than us.   

My wife told me one of her clients has hundreds of rentals in AL and he is making millions per year from these AL rentals alone.  Not all areas of AL will be good investments, but at least I know somebody who is making it work in the state.  Based on what I heard, his investments are in larger cities in AL.

[Matt K.]

Pass, slow area going to be a huge pain to get rid of it in the future.

And if you're doing VA .... It'll have to be your primary residence for a year or so. Generally speaking VA or similar 0/low down loans don't cashflow all that well if at all. Same goes with maintenance, those items are a percentage. Everything has a useful lifespan and replacement cost..come up with real numbers.

Laslty move away from percentage for items. There's no such thing as a 10% vacancy, what does that even mean.

[Cristian Aviles-Morales]

@Matt K. By the 10% vacancy and moving away from the percentage for items, are you suggesting that he gets a real number $ for that in lieu of the 10%? 

So instead of saying 10% // $80 a month, what are you suggesting he replace it with? 

Still learning myself, hopefully I didn't come off as rude. 

[Matt K.]

You can't predict vacancy in the sense of how long it'll take to rent something... But you do know how much it costs to operate on a per month basis.

So if you decide that 2 months the normal amount of time for vacancy for your property set aside 2months of expenses. Maybe you don't have vacancy for years or maybe it's next month...either way you're covered.

Same logic applies to maintenance based off condition and length of ownership.