Quote from @Dan H.:
Quote from @Jack Cottrell:
I'm a complete noob. I'm planning to put in my first offer on my first rental on a SFH in Kansas City in the next day or two.
$140k offer
8% interest rate
20% down
8% management fee
5% vacancy
5% maintenance
5% cap ex
I haven't gotten insurance costs yet but it's been suggested that I plan for $2k per year.
Once I plug in all those numbers, I'm pretty close to breaking even. I have the ability to put 25% down or more to increase cash flow. I just want some outside eyes to help me understand if this deal is what I should expect to find as I build my portfolio.
I plan to buy and hold long term. I am expecting to do 3-4 deals per year until I get to 20 properties or so and then snowball the debt so they are all paid off by retirement.
Am I ok with this plan to ride up the appreciation, mortgage pay down and rising rents? Or is this type of deal that you savvy investors out there would scrap and try to be more aggressive? Any thoughts are appreciated!
At $1350 rent:
- sustained maintenance/cap ex will far exceed 10%
- I will be surprised if you can find someone to manage this one unit at $108/month. Jaybe if you had a few units this can be achieved.
- 20with the unit being empty and in need of some TLC, 5% vacancy will be too low.
a property that cost $140k has not had appreciation that has kept up with appreciation. These properties typically do not have rent growth that keeps up with inflation. This implies the return has to be via cash flow but you indicate with your numbers it is pretty close to break even. This means with my numbers it will be cash negative.
how will this help you scale to 3 to 4 deals a year to get to 20 deals? I see this making it hard to scale.
question: how come your rate is so poor? Do you have a good credit score? If not, work on Improving it before purchasing an investment property. Better rate would help your cash flow.
i would pass, more relevant is I recommend you pass on this purchase.
good kuck
Hi Dan, thanks for the reply. I appreciate you working through all the various points you mentioned.
Is it a common issue for beginners to get a PM on board with only 1 property to manage to start? I don't know how to avoid it. The plan is to buy more this year, but I can only do one deal at a time. Do managers that advertise 8% only do 8% when there's a bundle of doors to manage?
I have a 780 credit score and no debt besides my personal residence. What kind of rate should I be able to get right now?
I have enough to put 25 or 30% down. But I'm gathering that this may be a fools errand if the house is not appreciating. I'm in it for the long haul so if it doesn't work on a small scale, it won't work on a large scale.
The general advice I'm hearing is that if I want what I'm looking for, then avoiding a C property is the route. Would you agree? I can afford to invest in B properties with larger down payments but I guess it means I may be doing more like 2-3 deals per year than 3-4.
