Buy and hold rental analysis

[Jack Plantin]

Looking to use a part of my savings to pick up an investment property and become a landlord. Let me know what you think of this property.

1000 SQFT 2Br/1Bath in Hammond, Indiana. 7133 Hohman Ave. Supposedly good rental market for blue collar Chicago workers. B class city per Niche.

Asking price: 89k

DP: 20% 17.8k

Rehab budget: Inside is good condition, but dated. 3-5k for new appliances, fixtures, countertops, etc.

PITI: $485

Average rent in area: 1-1.2k

With 50% rule that's around $250 a month cash flow.

Is it worth it to try for 5-10% conventional loan since it's not distressed? Best case scenario would be to get it for lower than market value to BRRRR it, but don't see that happening since it's on market and not distressed.

Let me know if I'm on the right track or there are other variables I'm missing.

[Whitney Hutten]

@Jack Plantin I don't use percentages rather underwrite estimated/actual costs.  The only percentages I use are the following for my market (so these may not apply to your market):

- Vacancy 8% (This equates to 1 full month of rent. Note, I'm doubling this for the next 6 months at least due to coronavirus impact to account for economic vacancy)

- Capex 5% (I do full rehabs. However, things will still break down)

- Maintenance 5% 

- PM 8-10% depending on location

- Taxes - I pull from Redfin, Zillow or county assessor (watchout for homes that still qualify for homestead exemptions and adjust accordingly)

- Insurance - Call around for agents in your area that you are looking to buy in and get a base rate to underwrite.  This will be a moving target until you have it locked in by the deal.

- Utilities - Be sure to understand (especially if buying turnkey because the lease is already in place) who pays utilities including, garbage, lawn care, snow removal, pest control, etc. I generally push all utilities to the tenant.  I do underwrite cleaning the gutters and possible pest treatment 1 time a year (but I don't tell them that).