Deal Analysis

[Jerry Poon]

Am I doing my math right?

I found a place for around $130k. Mortgage with 20% worst case is $700/month. Research is telling me I can get around $1200-1400/month for rent. Here are the numbers:

20% down = $26,000

Overestimated closing costs = $10,000

Minimum Rent = $1200/month

High Property Manager Cut at 10% = -$120/month

So here's the math:

(1200-120)/(26000+10000)=33%

So WORST CASE SCENARIO is about 33%. Am I missing something??

The neighborhood is decent. Schools are decent. There's a couple average schools nearby, but beyond that radius the schools are mostly 8/10 and above. Crime heat map is green.

[Aaron Montague]

@Jerry Poon 

Rental Property Evaluation:

1% rule - Do monthly rents equal or exceed 1% of the purchase price.  Purchase price is not the listed price but the amount you could reasonable expect to pay.

Determine monthly expenses.  Subtract the following from my expected monthly rents:

Taxes

Sewer and Water

Trash

Heat/Utilities

HOA

Cap Ex and Ops (my personal minimum is $150/roof/month)

Insurance

Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)

Vacancy- as a %. (8% represents 1 vacant month/unit/year)

My basic returns must be at least $100/door cash floor and 15% Cash on Cash return to continue.

Once that is done I determine the "headache" level.  I evaluate the level of annoyance that running this property will cause me.  If I believe it is worth it, I go buy the place.