How much would you pay for this property?

Question

I have a single family home I recently purchased and rehabbed.  I was hoping a few investors would chime in on how much they would pay for this cash flow.

Details.  Single family home in a town with 110,000 population (Texas town)  Military base presence with a Public University.  This two bedroom  1 bath house (720 sqft)is paid off using cash.  I had new interior and exterior paint done, new carpet, and new roof installed.

I have a tentant in place for the last 3 months paying $658 a month rent.(section 8).  I bought the house 4 months ago.

Taxes are $387 annual and I have USAA property insurance paying $473 annual.  I have a property manager in place and pay them 10% of the rent.

I am wondering what I should sell this to another investor for.  Or maybe create a note for someone to assume.

I am a new real estate investor and have 3 properties purchased recently.

Any advise is greatly appreciated.

Scott R. · Answer

As Nathan stated above, based on 50% rule, $32k. Simple answer.

Based on my own personal experience with section 8, which generally pays based on the number of bedrooms, the section 8 stuff i have done and properties i have seen, that rent is generally inflated IMO.
You dont say where this property is, so I'll use my local stuff for example.
IN MY AREA, AMARILLO TEXAS -
Maximum HUD will pay for a 2 bedroom is $696
Although it MAY BE ILLEGAL, (thats a different discussion), in most the lower income areas, properties that are 2 bedroom and rented on section 8 are rented for close to this number, even if they wouldnt normally rent for such. I have a non section 8 house, 2/1 720sq ft rented for $500/mo, theres a house not as nice rented across the street, rented for $700/mo with section 8 paying almost the full rent, tenant pays $50 a month. I showed interest in purchasing this property, but the owner overvalues the property based on what the property brings in. 
The tenants on hud dont look for good or even average rental rates when they are not paying the rent.

My house I paid $24,000 for, the one across the street is similar size, but not as nice. I would personally pay probablly $20k
Based on 20k and 2% rule that house should rent for $400
Based on the $700 he rents it for, it should sell for $35,000
$35k is almost double what this house is REALISTICALLY worth. Now if he was willing to owner finance this property, I'd say he'd get every bit of $35k asking price, owner financed.
If he needed to get rid of this property in a realistic time frame, $20k $25k tops.
Based on this you can see how rent doesnt fully allow you to set a purchase price, or value on a property
There are properties in my area selling for $60k range, renting for $700 a month,
the property i reference above is valued at 25k tops and rents for $700/mo

My second question/concern with this property is you say the taxes are $387 annually. for texas that is EXTREMELY LOW!, again I dont know where this property is, but that seems extremely low.
I'll use actual numbers for the property I talked about above for reference, now dont get me wrong, tax apprasials are not a value you should base sales or purchase price off of, i just feel this property is probablly valued very low in the tax apprasial.
My house, 
Building value $11,254
Extra feature $250 (storage shed)
Land market value $6,500 (yea right)
puts my total apprased value at $18,004
and I pay $420 a year. 
to be in that $390 area your tax value would have to be roughly $15k building and land value. I'd GUESS with a property valuation so low based on tax apprasial for a 720/sqft property its a lower income older area. thats just my guess. These areas are often the best areas IMO to cash flow, but hard to sell.
would I sell my property for $18,004? hell no I just paid $24k for it, just using this as a "estimate" on your taxed valueation, based on what you pay locally.
In Arizona, my parents property is tax valued at $200k and they pay $600 a month. Texas is highly over taxed for real estate IMO, althought we have no state income tax :)

Nathan Emmert · Answer

Are you familiar with the 2% and 50% rules of rentals?

The 50% rule says over the long haul, 50% of GOI will go towards expenses on properties professionally managed.

The 2% "guideline" I'll all it, says in the $500 neighborhood for rent, the monthly rents should be 2% of purchase price.

With rents of $650, you'd be looking at a sales price in the $32k range.  The problem with that is you can't get a mortgage so you need a cash buyer.  For a cash buyer that would be a little over a 10% annual return, not terrible for those sorts of unleveraged deals.