All Forum Posts by: Marty Gold

@Andrew Johnson

Would $800/yr sound like a better CapEx number to you?

And maybe $2,500 maintenance?

With those altered figures, how does this rental strike you from a numbers perspective?

Thanks

a close friend approached me yesterday with a possible rental deal.  He knew I was in the process of finding my first property and he asked if I'd join him on this deal.  We went over the numbers, some are based on last year's data and some are estimations.  I will lay it all out below and hope people can offer advice.   It's my first deal and while this one passes the 1% rule(barely), it doesn't pass the 2% rule so that gives me pause.

Facts or numbers based on last year:

Purchase price is $182k (didn't yet negotiate). I should say, this is a rental in a college town and a rental for students(6 bed - 2 bath).  It's about 8 blocks from campus and 2-3 from some popular bars.  It is already rented next year.  I saw pictures of a few properties he visited, this one isn't very updated but by far nicer than the other 5 he showed me.  We may want to paint a little or something but there isn't much needed for renovations. 

$1,100 annual property taxes. 

$250 insurance.  

$24,000 annual rental income, rented a year at a time with $12,000 paid before the fall semester and $12,000 upfront for spring.  

Estimated numbers which we hope are accurate or too high:

4.3% 30 year mortgage for 80% of the purchase price. 

$9,000 closing costs. 

$1,500 per year in repairs/maintenance. 

$3,600 per year for electric/water/sewage (they pay heat/cable)

$400 put aside each year for future capital expenditures (should this be higher?)

That's it. 

We aren't sure about hiring a management company but we will obtain pricing and then make a decision. 

We also didn't know how to factor vacancy rate.  The two story home rents for $12,000 per semester and can sleep 6, but if only 5 students live there the rent is still $12,000.   Also the $12,000 is paid in a lump sum twice per year, not monthly.  What do you suggest we do to error on a conservative side?

Thank you to anyone willing to help crunch these numbers or offer advice!

@JoshFulenwider

This is my first investment property.  So 0 experience other than primary residence mortgage.  My partner and I have excellent credit scores. He has the same experience as me.  

We want to get our toes wet on a small one-unit rental property in the 200k range, give or take a little.     

Ty for your helpful post.  Please contribute more if my info alters your answer.  

Am I correct to understand that a bank or credit union will not negotiate their current set mortgage rates for a small time rental property purchaser?  

I do believe some banks may have slightly different rates.  Do banks also have different closing costs (is that something which can be known prior to presenting the details of a property)? 

Do people shop between 2-5 banks and try to find the best rate or are they all the same and thus, not worth the time to shop around?

Thanks 

thank you all for answering.  

I read somewhere that ROI (in some form, I guess) should be utilized when deciding if a priority is a good investment vs something else.

For example if I can but a bond with a 4% ROI, it would be kind of silly to invest in a property with 4% ROI as I get the same return but have more work to do.

So when comparing a rental property to other possible investments, which calculation should be used to estimate my return?

Thank you!

Please assume this hypothetical:

I find a property for $200,000.

I get a mortgage for this property and put down 10 ($20,000).  

The property earns a net profit of $2,000 per year.  

What is my ROI?

Is my ROI 1%? (200,000/2,000)

Or is my ROI 10%?

(20,000/2,000)

Thank you 

 Could this be a legal problem for discriminating a 19 year old who has a part time job while in school?

 Great advice. Thank you. 

In your opinion would it be better to buy a college rental which is 2-3 blocks from campus or one which is a bit of a walk from campus but situated next to many of the bars/restaurants?

Thank you.  Are the rates of returns in the college towns higher because of students driving up the prices, or are rates of return higher on rentals in the college town even if the property tenants aren't student focused? 

An agent found me some rental properties near a local college.  Not all the properties qualify as off campus housing, some are for non students (professors, locals, etc).  

Is anyone familiar with these two different groups when it comes to rentals?  Is one more desirable than the other?

Thank you.