Renter · Walnut Creek, CA · Member since 2009 · 3 posts · 0 votes
I have narrowed down my first real estate investment to three deals
1st one a triplex in stockton, ca for 143,000 with 20% down
deal looks like this 675 P&I 30 yr. fix, 145 tax's, 200 HOA needs about $15,000 of work. Should cash flow by 1400 a month or so.
2nd deal Concord, CA house price of 187,000 with 20% down deal looks like 882 P&I 30 yr. fix, 194 tax's. Deal should cash flow $500 a month
3rd deal condo in Antioch 50,000 grand with 20% down deal looks like it would cash flow of 340 a month.
Sorry for being naive but it feels like there are so many deals out there right now and I don't know if my first deal should be something small like the condo which will not appreciate for a while, triplex - great cashflow not much appreciation or the home.
Very confusing I have read my books saved my money and these are the best deals I can find and I am ready to act.
Real Estate Investor · Myrtle creek , OR · Member since 2008 · 343 posts · 13 votes
17y
Steve, by my calculations the rent for the triplex would have to be $1,767 per unit to cash flow 1,400 per month by the 50% rule. Are rents in Stockton that high? Jim
San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes
17y
Yes, I agree with the 50% rule. I'd also double check with the property management companies in the area to verify rents - they will tell you the real deal ;)
Some folks would consider that too low for a triplex.
With your 20% down and the $15K for rehab from your cash:
P&I: $761
Cash flow: $514/month
Cash flow: $6167/year
Cash on cash return: 12% (ignoring closing costs, which you shouldn't)
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
17y
50% of gross scheduled rents. That's the 50% rule. Do have a look at those thread in the Landlording forum. That includes taxes and HOA, which you mention, but numerous additional items you're skipping. Those include insurance, vacancies, eviction costs, tenant damage over the security deposits, a CPA, a lawyer, HOA assessments, make ready costs between tenants, advertising, etc., etc., etc. If I was going to manage a property myself, I'd tend to drop that percentage down. However, you have an HOA, and that's rarely good or controllable. So, I'd use 50% for this evaluation. And, I'd look carefully to be sure there's nothing that would make it higher. Such as an underfunded HOA and deferred maintenance that would cause a big bump. Or limitations on who you can rent to or a requirement for HOA board approval for anything you do or any tenants you want to rent to. Or a large number of "for rent" or "first month free" signs in the area.
Make you first deal especially lucrative to make up for the mistakes you'll inevitably make. That way you can recover from the mistakes and go on to make money in this business. This deal isn't far off the mark, so it seem like you have a good location.