First Rental Property Philadelphia

[Kyle Constantine]

Hello BP community! I am trying to figure out if this rental property is a good first investment, and I am having trouble making a decision if it’s worth it or not. Any input would be greatly appreciated. 

Duplex Purchase price $161K (As is)

Down payment would be 15% $25,150.

Closing costs $12K 

Repairs would be around $7K

Total invested= $43,150

Estimated mortgage would be $922 per month. 

Each door rented for $700 a month previously. 

If I'm correct my ROI would be around 13%

Does this seem right?

Thank you!

[Ethan Giller]

Without digging into the details, the back-of-the-napkin calculation sounds like you would be all-in for $180K for a property that rents for $1,400/month. The BP metric that's tossed around is that you should be looking for at least 1%/month to make it into a good deal, unless it's in a great area and you're just betting on appreciation. You're at 0.78%/month which indicates, again just from a ballpark perspective, that you may not ultimately be satisfied with the purchase unless it's in a prime area. 

Personally, while this metric is very useful, I look mostly at two factors: debt service coverage ratio (DSCR) and appraised value (which drives LTV). If your deal has at least a 1.25 DSCR and your all-in cost divided by the ARV appraisal is 75% or less, that means that if you refinance your mortgage, you will be able to pull all your cash out, which is the goal for many investors. I'd recommend running those numbers on your deal and seeing where they come out. I believe that BP has some calculators that can assist you with this.

Philadelphia has a lot of investment properties that come on the market consistently, so if this one doesn't meet your numbers, there may be others that do.