Rental property analysis

[Sujay Kumar]

Hi,

I am looking to buy a rental property / SFH for 80,000 using funds in self directed IRA/ cash.

Monthly expenses is 760 using the bigger pockets calculator ( including insurance- 120.00 per month, property management-10%, cap ex-10%, vacancy factor-10%, repairs and maintenance-10% property taxes- 240.00 per month)

Rents for 1000-1100 per month.

Monthly cash flow is 240.00 per month( if rent is 1000) 

Does this sound like a good deal?

My goal is long term buy and hold for retirement.

[Christian Hutchinson]

Originally posted by @Sujay Kumar:

thank you Steve , Frank , John and Peone for responding... Thank you for the valid points . I will do more due diligence  before deciding to place an offer .

I have a home on Chalfonte in the Farms...I also have 7 other rentals properties in Metro Detroit. Grosse Pointe homes don't cash flow well because of taxes.  Also, rents are slightly lower to comparable high priced areas(B-Ham, Troy, Northville, Bloomfield).  There are some good values on the Duplexes and Triplexes if you can pry them out of the owners hands at a good price.

I see in your profile you are trying to build a portfolio.  Is this a Cash purchase, or a Mortgage? We are eyeing up a purchase in the Woods(Duplex) once we sale a property in Northern Macomb County. Its mainly because we want a $800-$900 units 10-15 minutes from Downtown Detroit in an very good/excellent School District.  We see the momentum Downtown(we have a triplex Downtown too), and know those people will leave the City but want to stay close, but maybe can't afford a 300K-$400K home in GP right when they have their first child/get married.

Lets not make this more complicated than it needs to be, if your monthly rent is not 1% of your purchase price, the deal is no good for investment purposes in most cases.  Now if you said "I have a family member who stays in the area extended period of time and you can stick them in there and rent out the other unit then the rule doesn't apply.  Or if you were buying a property for your child at college, and you were going to rent out the space your child wasn't using" the 1% rule doesn't apply. Thats just the initial evaluation.

If this is your first and only property do it yourself.  Someone will take 7-12% from you.  That kills your margins.

If you have $85K in cash you can do some real damage in Metro Detroit, in places like Roseville, Clinton Twp, Madison Heights, SCS, Sterling Heights(Pricier) even.  We have a place in Roseville its a Duplex I bought it for $66K in August 2014.  I get 1350 a month(750/600).  We had to put down 25%.  We paid cash for a place in Sterling Heights has Utica Schools.  It was $92K needed $12K of work, we rent it out for $1400/month, we bought that in May 2014 comps in the area are for $130K-$145K. As we collected rent we upgraded the appliances to stainless steel(tenants were excited cause their rent stayed the same, and guess what its a tax write-off, and they basically paid for those appliances). So in one year we paid for our renovations, and our cash invested jumped 30% in value.

There is something to be said of getting a high value piece of property breaking even and getting 3-6% appreciation/yr for 10-15 years.  But I imagine you want some monthly cash, and some appreciation The Pointes are not ideal. You could do investor mortgages at 20-30% down and walk away with 3 properties that are between $75-125K that are paying you 800-1300 each month, and they will be in nicer places than Harper Woods.

Its ultimately your money, and you understand your goals, risk tolerance, and most importantly time better than anyone. If it was me with $85K there is only one Property I would purchase in GP for investment purposes. If you PM me, I'll send you the listing.  I absolutely love the property, the issue is again tying up $85K. I know of plenty of other places my money could do better in even High End areas in Oakland County.