Single Family buy and hold

[Rachel Fazio]

Hi All,

Went to see a house last week. Made an offer, can't get the seller to come down quite as much as I'd like. Thought I would run it by y'all and see if you think it's worth it.

~1500 sqft, 3 bed, 2 bath home - class C neighborhood

Exterior needs new fascia on the front. Interior needs paint, minor flooring repair, cosmetic work.

My offer of 16k (due to it needing more interior work than I thought from the pictures) was not accepted. Seller is holding firm at 20k.

I think the rent the market can bear for this one is $650/month. Zillow (I know, I know...but we'll see) is saying $750, I think mostly based on the sqft. It's one of the bigger homes in the area.

The way I see it, I'm looking at:

$650*12*.5 (rent for a year - 50% expenses) = $3900

My total investment would be $25,000 (20 for the home and ~5 for the cosmetic work).

Cap rate of 2.6%.

Cash on cash return of 14.4%.

My hesitation is that I might prefer a 3% cap rate in a Class C neighborhood, and to do that the repairs would have to come out under budget (does that ever happen?) or I'd have to get more rent than expected (probably the more likely scenario).

Thoughts?