Help with First SFR property in Minnesota

[Robert Kretsch]

Hello,

I am looking for my first SFR property in the Monticello, MN (30 miles NW of Minneapolis on I-94 freeway). I have been looking at properties with a realtor and I am looking for some help in analyzing the deal. I have looked at about 10 places and they all seem to be about the same as far as cash on cash return. (5-8%). I am reading about people getting 25% cash on cash and I am not sure if I am looking at the wrong type of property or in the wrong area. So here is one I looked at yesterday:

Property built in 1996

list price= $159,900

25% down pay=$39,750

rent=$1300

tax=$1800

insur=$1200

Replacement/Repair= $1600 (is this realistic)

Vacancy=$1300 (is this realistic)

I would do the management

I came up with Cash on Cash return of 6.8%

All of the houses I have looked at come out about the same as this. When I look at houses that cost less then they need new windows are much older or are in older type of neighborhood where it might be hard to rent or the rent would be so much lower the numbers come out the same.... Any help or advice would be appreciated...

Thanks,

[Marc Jolicoeur]

Robert,

I have a townhome in Farmington, MN that brings in $1300 in rents easy. I got it for $104,000 during the housing downturn and it brings in enough cash to cover future maintenance, capex, and possible vacancies and still bring me $200 in cash. I think my return is 8% if I remember correctly the last time I rant the numbers. It has a monthly HOA but I also got it at a lower mortgage interest rate of 4%.

I also self-manage but I am always planning in case I get sick or die - I want my spouse or kids to be able to hire a property manager.

Now, When I am looking at other properties to acquire, I am looking at similar properties in the $120K range. These would work. But when they get to cost $150K, the numbers don't work anymore. Then, you are praying for no vacancies and no repairs which is not reasonable in the long term.

I would say look for properties under $140K. Or properties that can carry a larger rental asking price. Or, use an even larger downpayment.

Good luck and please share what you end up doing.