First purchase advice

[Tony Gazetti]

Hello all!

So I'm still in the process of finding my first rental property. I put in an offer on one that looked like a good opportunity, but it didn't pan out. That offer allowed me to discover that there are quite a few more opportunities out there for what I'm trying to do. However, I wanted to run my thinking past the community to get some feedback on my thought process.

These calculations represent a realistic purchase that I could make in the area I live. It assumes a purchase price of $140k with a down payment of $50k, resulting in a loan of $90k and a total payment of $857. The payment includes taxes, interest, insurance, 8% vacancy, and $50/month of repairs. I did NOT include CapEx in my total monthly expenses number, which is the reason I want more experienced investors to check my numbers. The box in RED is how I figured CapEx into my Total ROI. I assumed an extremely high CapEx over 18 years (2 washers, 2 dryers, 2 fridges, 2 water heaters, 2 water softeners, 2 dishwashers; 1 furnace and 1 AC unit, and 1 roof). With that conservative estimate of my total all in cost, and a pretty conservative estimate of only 3% annual appreciation on the property, I'm still at 7.33% ROI when you factor in the cash flow income (which is also conservative, because I didn't account for any rent increase over 18 years).

Also I should note that I am already approved at 4.75% for the loan, so that part is not an issue.

Is there anything I am missing? It seems like a pretty solid plan, and if anything goes better than I projected here, it could be even more solid. Thank you for taking the time to review and any advice you can give!

Tony

[Christian Hutchinson]

@Tony Gazetti

You are talking about this like someone who has been studying Real Estate and listening to podcast for a year.

Here is some easy, free advice.

Take your money and instead of grabbing a property for $140K in places you feel "comfortable" with go get 2 places like a normal investor in Roseville, Oak Park, Madison Heights, Hazel Park, or Redford. Something with 3 beds, preferably brick, basement is a bonus, garage is even better.

Its extremely difficult to make money on SFH in the $140K range. TOP end of the rental market in Michigan is $2200/mo when you consider that someone needs $6600/mo in income to afford this (79200/yr) . Thats in places like northern Farmington, Bloomfield, Rochester, Troy, Birmingham, Canton. Your market once you get above $1600 ($4800/mo and $58K/yr) thins out greatly, and only flies in a few markets in Metro Detroit. This here is a breakdown of median incomes, city, county for every city considered in "range" meaning they can afford $900 to $2200/mo in rent, and have more than 1500 households. After seeing this chart overlay your numbers and start understanding "who" will actually rent your places, and where they will be given the pricepoint.

Classing neighborhoods don't help you make an investment decision because it completely negates how people actually choose housing. Meaning someone will pay $1800/mo to be in a 3 townhouse in Troy, MI with Troy Schools but will completely live with $1600/mo place 3 bedroom home in Auburn Hills, MI with Avondale Schools. Thats how people shop.

As you see the pool of people who can AFFORD that is greatly lower, and not even including if you as an investor can make any money on the deal. Divide these cities incomes by 12 then 3.  That will tell you where to buy, what purchase, and who your target is. One thing, I learned early on being a landlord, is people don't make as much money as you think they do.