Which house should I buy to RENT????

Question

Here is a pretty noobie question:
I have 2 houses, in the same neighborhood, about 2 streets apart.

1.  First house, is smaller (about 1100 sq ft), 3 bd/2bath, brick, selling for $50K.  Rehab to make it RENTABLE is about $15K.  Total cost:  65K
2.  Second house, is bigger (about 1500 sq ft), 3 bd/2bath, brick, selling for $67K.  Rehab to make it RENTABLE is about $10K.  This house is about 10 years younger.  Total cost:  77K.

The comps for the neighborhood is about $110s.  BUT the rent for the neighborhood is about $1050/mth.  Price per sq. footage is virtually the same at about $45 per sqft.

My question, since my strategy is Buy, Fix, RENT.  Does it make sense to buy the bigger house for $12K (based on Total cost) more, when the rent is will pretty much be the same??

Also, how much should I care about resell comps for ARVs if I plan to RENT?

Thanks!

EXO

Exo Dallas · Answer

Nationwidepi - You are correct and I wasn't very clear.

Comps will be more for the larger house.  Comps in the area is about $90 per sqft.  So bigger house, bigger resale (assuming I need to sell later).  As for rent,  I could probably get $50-100 more per month for the bigger house.

Thanks.

Exo

Will Barnard · Answer

Exo,
All excellent questions.
I find it hard to believe that the larger house will not receive higher comps, and if it does, you will have more value when you sell it due to the increased sq. footage. Also, you should be able to get a bit more rent for the larger house. The 12k difference in cost would result in an increased mortgage of approx. $70 monthly (IO) so as long as you can get $70 more for the larger of the two, you will be fine.

Also, the larger house needs less repairs according to your figures and is newer (better resale value down the road & possible less capital expenses).

In the end, it is a personal decision you must decide and above are only my observations. Ultimately, you should do a cash flow analysis on each and make sure the numbers work, then you can make a more informed decision.

Good luck.