Choice Between Two Properties

[Matt Leber]

I know some of you will probably tell me to offer on both properties, but....which one would you favor? I know numbers don’t usually lie, and they favor property 1 slightly. It’s just older and smaller and may be more maintenance. I’m likely going sec 8 either way.

Property 1:

$360/mo cash flow after vacancy, capex, misc repair reserves thru section 8. $35k invested capital at a purchase price of $90k (25% down plus closing costs plus minor repairs). B- neighborhood walking distance to high school. 3/1, but only 875 sq feet. Built in 1960 and may require some remodeling in the next 5 years. Remodeling likely inexpensive since it’s only 875 sq feet. Can get $1200 w sec 8. About 12% cash on cash.

Property 2:

$320/mo cash flow after vacancy, capex, misc repair reserves thru section 8. $42k invested capital at purchase price of $109k (25% down plus closing costs plus re-roof). C neighborhood but the property was remodeled in 2009 and is ready to go except the roof which we will replace. 3/1.5 1025 sq feet. Built in 2000 and will not need remodeling for some time. Can get $1250 w sec 8. About 9% cash on cash.

Which do you favor? They’re very similar numbers-wise.

[Greg Scott]

Not sure if they are in your numbers already but the 1960 property will likely require more ongoing maintenance and repairs than the other, so with only the information provided, I'd lean toward Property 2.

Beyond what you wrote, I'd compare the communities.  If I think one is more likely to hold its value or experience gentrification, that might sway me. With Property #2, I'd also explore if there is any way possible to make that 3/1.5 into a 3/2.  A 3/2 is much easier to sell and likely to appraise higher and rent for more.  Most families prefer two full baths.