Good returns on first rental property?

[Rodney Kuhl]

I posted a forum on here before asking whether it was best to purchase a duplex or SFH as my first rental property. I got a split answer with a lot of great insight. But after analyzing my situation and goals, I've decided to look at SFHs for now. I have come across a property that I think is a great potential rental, and wanted to see if you all could offer any advice. Thanks in advance!

Asking price: $50,000
Tax assessed value:$57,500
Down payment: $10,000 (20%) -- seller paying all closing costs
Rehab: $1,000 (really just needs floors vacuumed/scrubbed and stove + fridge)
Total initial investment: $11,000

Projected rent: $775/mo
Vacancy factor (10%): $77.50/mo
Total Income: $697.50/mo

Property Management (10%): $77.50/mo
Maintenance (10%): $77.50/mo
Legal: $25/mo
Taxes (capped at 2% of purchase price): $83.33/mo
Insurance: $45/mo
Total Expenses: $308.33/mo

Net Operating Income: $389/mo --- $4,670/yr

30-year Mortgage at 5.5%
Debt Service: $227.12

Net Cash Flow: $162/mo --- $1,944/yr

Cap Rate: 9%
Cash-on-Cash Returns: 18%

Do you think this would make for a good first rental property? I'm wondering if the 18% is a good start or if my money could be better used in other endeavors, like wholesaling.


What do you think? Thanks!

[Joseph Weisenbloom]

If the numbers you give are correct this looks good. The only thing I would caution is don't underestimate those repair costs. I know just a fridge and stove would exceed your projected budget of $1000. Get the house inspected make sure there are no other issues that are not readily apparent from just walking through the house.

This property is similar to the property I am currently working on closing right now. The cash flow per month isn't spectacular but I am investing so little into the project that my CoC % return is still high. Good way to dip your toe in the water of investing without too much money.

In my opinion I like buy and hold more than wholesaling because it is the easiest way to start out. People flock to wholesaling because you don't have to invest anything other than marketing. The truth is in order to compensate for lack of funds you need to have a strong knowledge of the market which newbies don't often have. I would be interested in getting into wholesaling someday but after I get a stream of passive cash flow. My 2 cents.