All Forum Posts by: Max Briggs

Thanks Brian, that makes me feel a lot better. My taxes coming down to sale price of the home would really help this deal cash flow. I'm glad to hear that they aren't combative, just slow. 

Thanks to everyone for the input.  In response to those that told me that I should have known all of these costs up front, I agree with you, and I thought I did, but as the deal unfolded I had to tweak some of my estimates and the tweaks changed things more than I would have expected (This is my first purchase after all).  The list included an insurance estimate of 1% of home value being raised to  1.3% (relatively minor), going from an assumed 10% property management fee to 14% after taking into account placement and rental renewal fees, and raising my original vacancy budget from 5%  to 10% (I'm honestly still not sure what the right number is, I've just decided to go more conservative.  Property managers have told me that they typically run under 5%).  These tweaks effected the math pretty substantially.  Also, finding out that there is an 8 month back log for requests to reevaluate property taxes also deflated me a bit because I thought reducing that bill would give me additional cushion and it still might, but it won't help me in the short term.  

At the end of the day, even with the high property taxes I'm looking at a $650 mortgage payment including P&I, property tax, and insurance.  I think I can reasonably assume an $1100 rent, so I've got $450/month left over to cover cap ex and repairs, vacancy and turn a profit, which seems like it should be enough especially now that I've decided not to use property management.  I guess I'm feeling better about the whole thing now that I've decided against property management, which as many of you pointed out is very high in my area.

The following is an updated version of what I posted on my BP blog recently.  I'd like to hear what people have to say:

I recently purchased my first rental property in a neighborhood that is renting between $1000 and $1200 for single family houses depending on features/updates. We settled on a price of $60K. That gives an annual rent to price ratio of 20% - 24% or alternatively a price to rent ratio of 4.15-5, which is about as good as I've found in the area for a house with a clean Point of Sale. I thought I was getting a great deal. However, things are getting complicated. This city has insane property taxes, so this house is being taxed $3850 annually. I am contesting the taxes now, which are based on a $92k home value, but there is no guarantee that they will change, so I'm budgeting assuming the full $3850. Insurance is $800/year. Property management (if I choose to use it) is 10% of rent + 1 Month Rent for placement + $200 Renewal Fee, which I estimate at 14% of gross rent. Loan Payment of $260/month, $150/month for repair/maint/CapEx, and a vacancy rate of 10% basically gets me back to break even. All of this has me a little discouraged. I live in Cleveland with one of the best Price to Rent ratios in the country. I found a pretty clean house with a better price to rent ratio than the general cleveland market, and I still can't turn a profit? How is this possible? How could anyone find a profitable house to rent in other parts of the country where the price to rent ratio is 10 (or 30 or 40?!?) if I can't turn a profit on a house with a price to rent ratio of 5? Are any of my assumptions way off? Am I missing something?

I believe that I can still turn a decent profit by not using property management and implementing some  improvements to guarantee a rent at the higher end of market rates, but I'm pretty surprised at how marginal this looks.