New investor advice on Rental property

[Rick R.]

Hi

I am planning to submit an offer on a rental property in B/C area in a small city close to Dallas Metroplex. Below are the details and can you please advice me, if this is something worth pursuing. 

Sale price : $210k (Duplex built in 2005 and 2 open lots  of 6000 sqft next to the Duplex)

Repairs : $15,000 (Foundation issues, replace carpet with tiles, kitchen upgrades etc)

Rents : $2000/month (each duplex unit rents for $1000/month) : $24000/year. Tenants pay all utilities

Maintenance (10%) : $2400

Property management (10%) : $2400

Vacancy (10%) : $2400

Taxes & Insurance: $8000

Down payment (25%) and rest conventional financing.

Rents can be increased by ~10%. There is little cash flow after mortgage payments. The two open lots will allow to built two more SFH/Duplex units. Until I decide to built on these lots, the rents from Duplex should be able to sustain it.

[Ralph Hunter]

IMO, this is not a viable income property. I ran your numbers through a basic spreadsheet. Your property insurance and taxes on their own account for 34% of your gross income. In total, your expenses not including the mortgage amount to 68% of your gross income which includes 5% for Capital Reserves which are not mentioned.

I ran your mortgage at 30 years, 4.25%, 25% down, financing only the purchase price, your mortgage payment should only be $774.81. 

Even using these figures, you have a negative cash flow of $141 PER MONTH. Even with a 10% increase in rents, you are looking at a NEGATIVE cash flow. Your cap rate is only 4.1% when you factor in the repairs. 

If a property cannot cash flow from the start, I do not advise a purchase. Even if you build on the additional lot, usually new construction does not create a good rental cash flow.