Deal Analysis Help in Minneapolis Area

[John Woodington]

This house (3 bed/3 bath townhouse) is about 5 houses down from me, and I'm thinking it would be a good investment from a proximity perspective, but would like some outsider opinions on the numbers:

• Price: $212,000
• Repairs: $0 (I know the owners, and they are meticulous, and they replaced carpet, paint, and appliances prior to listing)
• Rents for: $1800/month (based on comps in our neighborhood)
• PITI: $1465/month (Principal and Interest = $910, Insurance = $45, Assoc Dues = $250, Taxes = $200, PMI = $60)

I can only afford to put $30K down on this house, hence the PMI. This house is in a townhome association, of which I on the Board of Directors, so the insurance is low, but the dues make up for that. I would manage it myself. Long term goal would be to own half a dozen houses all in this neighborhood, mostly to build equity via mortgage paydowns, rather than excessive cashflow.

Any objective thoughts would be welcomed.

[Daniel Kurkowski]

Have you done a cashflow analysis?  Just from the numbers here it appears that it wouldn't work too well when you factor in vacancy, repairs and minimal capex.  Townhomes usually have a much more capped appreciation that single families due to the association fees affecting a buyer's ability to make the monthly payment.

Could you make it break even?  Probably, but why invest your capital into something that becomes illiquid the second the market turns.  This was a common strategy in 2006 which I wouldn't recommend continuing.