1st Buy and Hold....is this a good investment?

Question

I love this page and have been learning so much. I did some searching tonight of listings that are local in my area of West Michigan. And then ran the rental report. I think I got this right.

Beth DeVries · Answer

Hey Michael!

Easy answer.....I didn't know what to put! haha. So that is the reason for me posting so I can learn. So pretty much match the increase of rental to the increase of expenses. That totally makes sense. And thanks for the info on the CapEx as well. Just getting started in learning the numbers that go into the calculators is super helpful. I appreciate everyone's input on this.

Michael Mullininx · Answer

@Beth DeVries out of curiosity, why did you go with a 1% yearly rent increase? 3% is a pretty standard bump and you're moving backwards if expenses actually do increase by 3% like you predict.

I do agree with Kyle about your CapEx budget though. Unless you get into a larger multi-family property pick a flat amount to put aside. Personally I would set aside around $50/mo for CapEx but it all depends on how much risk you want to take.

Good luck getting into the investment game!

Beth DeVries · Answer

Thank you for the reply. The intention would be to hold this long term too. I put the price where I did as only to run numbers and try to start learning what they all mean. I totally understand though what you mean about going lower. Which of course would be my intention.I actually do not have a lender at this time. I feel a bit "alone" so far in this process of just getting started. I need to start networking more. And deciding our niche.

Scott Matthew C. · Answer

@Beth DeVries I would advise you make your offer between $15k - $25k.

Your mindset should be the following. Buy low and Sell High. You’re not going low enough.

I’m curious to know who your lender is. Why? There are not a lot of lenders that will loan at your current offer of $34,900 on a 30 year mortgage. I’ve yet to meet one.

Also, your closing costs are way too high for a $34,900 purchase price. A realistic number is around $800, if that.

Good luck!

Derrick E. · Answer

@Beth DeVries No offense to these other people but don't let the people living in coastal areas talk you out of something based on price. The same thing that costs $34k in the midwest would be $340k in CA and they would be all over it.

I have multiple rentals in that $550 price range. Nothing wrong with it at all. I find great tenants who pay me on time and I have no complaints.

Beth DeVries · Answer

Hey Ali! Thanks for the reply and feedback. I really appreciate that. This neighborhood is a low income area. The listing did say this tenant has lived here 10 years and doesn't want to move. So that in my opinion was a plus. I have not been in the home but my numbers I did put in a rehab budget though it may not actually need it. I more played with these numbers to try to start learning and understanding what everyone looks at when looking at the buy/hold side of things. So I really appreciate the feedback so I can grow in my understanding.

Ali Boone · Answer

What's the neighborhood and general area of this property like? $550 in rent is pretty low, and $34k for a property is definitely really low. If you get into too low of quality of property and/or tenants, you're going to be taking on a lot of added risk. And does the property need any rehabbing?

All and all, the numbers send off a lot of red flags for potential headaches. No amount of cash flow is worthwhile if it never comes in in the first place.

Beth DeVries · Answer

Hey Kyle! Thanks for the reply. I put in the numbers just based off current situation. At this moment I don't have a down payment so just put in 0 for that ;) Then the listing states this home has a long term renter, who wants to continue to rent, and they pay $550. So that is where that came from.I appreciate your feedback and knowing what you are looking at as I am still learning. We own a vacation rental in FL and have one home here in MI that we are owner financing. But really just getting started in learning and researching to build for the future.

Kyle Lewis · Answer

This is showing that you put $0 as down payment for your loan. Are you sure that's correct?

I'd also be a little concerned about $550 in rent. While it may pencil out on paper when calculating Repair and CapEx expenses as a percentage of rent, rents that low typically make it difficult to cover CapEx costs over time - like a new roof every x years, new windows every x years, etc. I don't like using a percentage of rent to estimate these (ex - CapEx = 8% of rents / $44/mo) because a new toilet in a $30,000 home getting $550 rent in Michigan costs roughly the same amount as a new toilet in a $1,000,000 home getting $5,000 rent in San Francisco.

Hope this helps. Best of luck!