Originally posted by @Susan Gillespie:
@Jason L.
What are you hoping to accomplish with this investment? Monthly cash flow of $130 is basically break even in my experience. If you have trouble finding a renter, or have unexpected expenses, you may have to subsidize out of pocket.
Other questions:
How long will you hold your rental?
Is it rented now?
What is your expectation for appreciation?
Are you confident that your property manager is a good one?
I’ve purchased a few turnkeys and they’re my worst performers. I also first invested out of state and personally think that approach comes with higher risk. As an out of state investor, you can do everything remotely, but you’ll have to trust your local contacts and it takes time to find and develop those relationships.
Your rents and expenses look reasonable, but I don’t know the market in terms of rental demand, taxes, home price trends, etc.
There might be an upside to your deal, but I don’t see one based on your numbers, unless you’re getting the property below market. As a turn key, that seems unlikely.
If I assume a 10 year hold, with 1% conservative price appreciation, you could see an internal rate of return at 10-11%, but low monthly net cash flow is still a concern.
Good luck with your search and feel free to let me know if you want to talk about long-distance investing.
I appreciate the thought-provoking questions @Susan Gillespie!
Mainly, I hope for this property to be cash flow positive. A modest monthly cash flow is fine as far as I'm concerned so long as my reserves are large enough to protect me against vacancy and maintenance costs. I'll settle for moderate cash flow as long as my risk exposure is in line with the modest expected return.
My hope is that this first property will help me save towards the next property, and so on. In this way, I hope to build a passive income portfolio of rental income properties over the next several years. So I do intend to hold each rental forever, unless appreciation accelerates to the point where selling becomes a no-brainer. I'm not counting on that to happen, however.
I've done minimal due diligence so far with the property manager that comes with this turnkey outfit. (I don't like the way that sentence just sounded!) I guess I'm relying on the testimonies of a few other investors I've spoken with, who've generally had good experiences.
I think the upside of this deal, if any, is that the property would come to me fully rehabbed (roof, furnace, windows, flooring, kitchen, bathroom, garage door, etc), thus requiring minimal maintenance for the first several years. Plus from what I can tell, the property is located in a relatively good area, at least as far as turnkey properties go (hence, the higher than normal price for a mid-west turnkey).
Your 10-year projection piques my curiosity. I'd be interested in learning more about the model you're using as well as the assumptions on which it is based.
