Single Family Rental Deal

[James Syed]

Hi everyone,

I need help in analyzing this (Single Family) purchase. Here it is;

Purchase Price $25,000

Rental Income $550 / Month X 12 = $6,600 Yearly

Taxes $800

Insurance $800

Repair $1000

Reserve $1000 (property is more than 50 years old)

Property Management 10%

Vacancy Rate 10%

Financing 5.25% over 15 years

How much should I offer? I want a minimum of $100 per cash flow.

[JT Spangler]

Who are you finding to finance a mortgage that small? I'm looking at SFRs in that price range, and I haven't found a lender yet that will finance under about 50k.

That said, running the numbers with the 50% rule, your yearly gross income is $3300. This rule will cover your maintenance, vacancies, and PM. So leftover gross profit is $3300 per year, or $275/month. I plugged in financing 20k (with 5k or 20% down) to a 15 year mortgage calculator with a 5.75% rate and your monthly debt servicing would be $166/month, leaving you with $109/month in positive cash flow.

Now, it looks like the expenses you posted exceed 50%, so I would make sure you're using the real numbers and not pro forma ones, or call around for some quotes to lower those numbers. You should also figure out financing, because (I'm in the process of doing this myself, by the way) a hard money lender will cost you more than conventional financing, cutting into your profits.

With the information you've given so far, I think it's a good buy at 25k, but I would probably try to acquire it for 20k, since I'm not sure about your financing and expenses.