Is this a good 1st rental?

[Andre Wilson]

Hello BP,

Last night I came across a good deal where I feel this can be a great opportunity to acquire my first rental but wanted more insight heres the breakdown:

The property is located in the city where there is some crime but the address is on a decent street

It is turnkey with current tenants paying 1125/month

Tax assessed at 30k, the seller is asking for 24k

It is a 5br 2bth home

I am assuming it needs no work since its currently rented, should I attack this deal or walk away? Personally I do think its a good deal and I would like to negotiate for a better price but I wanted more insight from experienced and seasoned investors.

Thank you!

[Joshua Weidman]

Andre Wilson ,

There are 3 key factors that go into evaluating an investment property: Location, Property Condition & Financial Analysis.

Before buying anything, you need to get acquainted with the area. Is the property located in a neighborhood with a lot of crime? How good/bad is the area? Are there a lot of boarded houses or abandoned buildings? What type of tenant is likely to live in the property (by type I mean white collar, blue collar, no collar), and how stable is their financial situation? A 5 bedroom house that's for sale for $24k and has a tenant paying $1125 per month is a home run...if the tenant pays the rent.

Next, when you evaluate the property condition, be realistic. Most of the time we are all very poor estimators. Whether it's time, distance or construction costs, we all tend to underestimate. I have a rule of thumb when looking at a potential rental. If I can't be sure it will last for 10 years, I budget to replace it. Make sure your mechanicals and structure are solid and then worry about the "cosmetics." On a 5 bedroom house, I'm betting it costs around $35-55k to renovate this building. I haven't seen it, but "cosmetic repairs" usually means it needs everything.

Last, be a stickler on the numbers. How much can you actually COLLECT for rent in the area? What's the REAL vacancy and turnover rate in the neighborhood. Be sure to calculate licensing fees, utility costs, taxes and insurance, leasing fees, maintenance costs, management fees and capital expenditures into your cash flow analysis. These numbers put a little damper on a super-sexy 50% ROI, but they'll let you know whether the property is really going to make you money.

Last point and I'll get off my soap box.

There's always another deal. Always! Remember this when you look at every property. Err (sp?) on the side of caution. And when the right deal comes along, don't be afraid to pull the trigger.

Good luck!