Ask opinion for a rowhouse in 21239, Baltimore city (rental)

[Ken Wang]

Dear Investors, 

  Here is the deal I am seeking the opinion.  

Row House in zip code '21239' in Idlewood community, Baltimore : 3 bed/1.5 bath

Trulia data: low crime rate

Age: 1953

Asking price ~ $120k

Proposed offer price: $90k

Roof & gutter: 2010

HVAC > 20 yrs

Hot water heater: recent

Plumbing: copper 

Closing cost: 7k

Repairs and MISC costs: $5k (Paint, lead certificate, patio fix, rental registration, cleaning, and unexpected cost)

Down payment: 20% (30 yrs, investment loan)

Loan rate: 5% 

Rent total: $1400 (below rentometer average, and I have checked recent listing as well) 

P&I: $387/mo

Taxes: $198/mo

Insurance: $50/mo

Lawn care: $40/mo

Ground rent: $8/mo

Vacancy: 8.3%  (1 month vacancy/yr)

CapEx: 18% (for this > 50 yrs old house)

Property Management: 10%

Cash flow: $210/mo

total cash need: 30k

Cash on cash: 8.4%

I have a few specific questions and would like to learn from you guys;

1. I have done my homework but would like to ask if I am being too conservative. 

2. Related to the 1st question, I have been searching rental property for a while in Baltimore city and close to west side of Baltimore County.  It seems difficult to see > 8% cash on cash return after considering all the expense, neighborhood, property condition and potential tenant category. After all, for this property, I can only get $210 monthly cashflow. I am wondering am I not looking hard enough or it is normal for Baltimore or surrounding market these days? I am not looking for low-value property but in a reasonable neighborhood to get a steady income. 

Any comment/critique is welcomed! Appreciate your time to read this list.

Sincerely,

Ken 

[Eric H.]

@Ken Wang Greetings,

I don't think you're being too conservative. The caveat is I am very conservative when it comes to  running my numbers. I use 12% vacancy factor for example. I think you will be able to place a more stable/attractive tenant in that neighborhood though.

If you are looking for a greater cash on cash return, consider the BRRRR strategy. Find a value add property, renovate, rent it out, refinance, and then repeat. This strategy will provide you with a greater coc return because at the time of the refinance you can pull all or some of your money out. Furthermore, you will be able to decrease capex designation by improving all major systems/structures when doing the renovation.

Happy investing! Peace!