The story
My wife and I live in Rome, GA, and the property in question is in an amazing location. A 90 second walk to downtown Broad Street, the hippest coffee shop in town, etc. Downtown Rome is booming and growing, and rents have been going up steadily for a while now.
We found the following house, and would love to live in it or rent it or AirBnB it. (it's zoned so that AirBnB should actually be really easy).
We're under contract, and our due diligence ends two days from now, Friday.
The numbers:
- Sales price: $112,000 currently (we might drop down a bit based on the issues described below).
- Seller contributes at closing: $2,500.
- Financing: FHA 203k Streamlined. (we're aware of the occupancy requirements)
- Down payment: 3.5% ($3,900 roughly)
- Repairs & renovations: $40,000 almost exactly (we have contractor estimate in hand) $30,000 would be financed into the mortgage.
- Taxes, Insurance, PMI: $1,500, $1,000, and $1,300 estimated, or about $360/month
- Total debt service: The above number plus P & I = $940 a month.
- Estimated R&M and CapEx: I'm trying to be conservative at $315 a month. The roof, HVAC, and water heater will be new.
- Property management / advertising: $80/month estimated
- Estimated Rental rate: $1,300 - $1,700.
The issues
Rent
Super hard to estimate for the area. Rates are kind of all over the place in Rome. 3/2 apartments outside of down that aren't very desirable can be $750-850.
Downtown lofts ON Broad Street (the main road in our town) are all between $1,100 and 1,800, with half the square footage as our house would offer.
Downtown houses near ours, but with 1,000+ more sq/ft than ours...rent for $2,500 or more.
To the best of my ability, once it is renovated, it will be very desirable to our target market tenants (young professionals). I believe it could rent for $1,500 - $1,600 after a month's worth of free marketing and word of mouth.
50% crawl space
Roughly half of the crawl space is not accessible. It's tiny (home built between 1910-1950. Still trying to determine that).
Some moderate termite issues were found just today, requiring $750 for a full treatment before they can issue a termite letter.
According to my FHA lender and her underwriter...this termite inspection / letter should be acceptable. The report would just say "and we can't issue opinions on this portion of the house as it is inaccessible, etc."
Advice/feedback?
When I run my numbers, they come out super close. $100-200 dollars in either direction depending on the circumstance, and that's with what I believe to be super conservative figures.
That, and at the end of the day, the location is amazing, super close to downtown, and highly desirable to our target market tenant. There is simply very little rental opportunities right in our area.
While we don't plan to start renting out right away (due to occupancy stipulations...and the fact that we do want to potentially live there part time anyways...), I'd obviously prefer it cash flow when it is rented out.
And the numbers are close. Thoughts?
Here's the property on zillow with pics, etc. It's ugly and needs the $40k in repairs/reno...but it will be mighty fine once that's taken care of. Still. Some risks.
Love love love to hear everyone's thoughts.
