Good Idea/Solid Rental Property?

[Joe Ciano]

Hi all. Was hoping to get some advice as simply reading these forums to this point has been great help!

My long story short is that I've been considering real estate inventing (focus on hold and rent) for a number of years but haven't felt the time was right to start. In the meantime, my wife and I have saved a sizable amount of money and do our best to live on 60% of our income. The opportunity that has presented itself is to purchase a condo and immediately fill it with a renter (sister) who is moving to NH and looking to rent. My thought was "hey, if she can be my tenant, maybe now is the right time to get into my first property". To be clear, she is perfectly capable of qualifying as a renter on her own and in no way would this be a favor. We've got clear heads and I'll only be entering into this arrangement if I am 100% confident this deal would stand on its own. Of course, even if it all works out, she isn't staying forever.

My main hesitations are that this is out of my area and the suitable property we found is a condo. Both things I didn't want but I was hoping for a sanity check from the community before deciding to make an offer. Without further ado, here is what I’m looking at:

Income
Gross Rent $900.00
Vacancy Factor $54.00
Net Rent $846.00

Expenses
"60% Rule" $540.00

NOI $306.00
Debt Servicing $262.61
Net Income $43.39

The constant variables for reference are: Association Fees: $220 and Property Taxes: $180.

My goal to get to these numbers is a final purchase price of $65,000 after closing costs and am factoring $20,000 down @ 5.75% I’ve used 60% expenses rather than 50% to account for the Association Fees increasing, (they have been steady at about 6% per year for the past 5 years). Also, while I’m factoring a vacancy cost, this should NOT be an issue year 1 due to my automatic tenant. This condo is currently listed at $89,000 and similar units are renting between $900-$1100 per month.

I hope you can tell I’m trying to be very conservative here so please be sure to let me know if I’ve left anything out and of course, ANY FEEDBACK IS GREATLY APPRECIATED!

Thanks!

-Joe C.