Hey there Andrew!
My initial thought here is that having expected rents of just over 1% of the purchase price is usually a good sign if you are willing to self-manage, but the fact that this home is in a less than stellar neighborhood could make the deal less than optimal. I'll usually run numbers on anything over 1% though, so let's take a look.
So for any deal that you are looking to analyze, you should be able to follow pretty similar steps. These have been outlined in a number of posts here and on many BP podcasts, but to summarize, you need to first determine the cash you expect to have coming in (rent, pet rent, laundry, etc) and the cash you expect to have going out (PITI, utilities, garbage, maintenance, capex, vacancies, property mgmt).
PITI, utilities and garbage can be considered "fixed" expenses that can be accurately determined ahead of time. Maintenance, capex, vacancies and prop mgmt are "variable" expenses that you will need to account for by putting aside a percentage of your income every month. When I'm doing a back of the envelope analysis, I'll usually just figure 5% of gross rents each (aside from prop mgmt which is a huge cost at around 10%). This usually ends up on the conservative side in my experience. However, in a lower income neighborhood, you might find that these are more accurate.
There are obviously other factors you can consider here, but this is the quick/dirty version.
Looking at the numbers, I am also surprised to see that you would need to pay $3,200 on a $105,000 property but I will take your word for it.
Here are the monthly numbers I would estimate for this property. I haven't read into what utilities/garbage might cost (I assume a lot in the winter!). You can optionally push the cost of utilities onto your future tenants, given that this isn't a multi-family with shared metering.
Monthly Balance Sheet
Income
Costs
- Principal/Interest (assuming 20% down, no PMI): $532
- Insurance (estimating $1,500/yr): $125
- Taxes: $266.66
- Electric/Gas: $75 (if paying)
- Water: $25 (via: https://www.warrenwater.com/20...)
- Garbage: $25
- Repairs, Capex, Vacancies (assuming self-managed): 180
- Total Estimated Monthly Costs: $1,228.66
So after all of that, assuming you start with 20% down on the property you will net about -1.64% COCR. So, not as great a deal as it seemed at first.
Is there a way you could add value? I will generally seek out properties that are distressed so that I can add some value immediately after purchase and then rent out before refinancing (aka BRRRR). If there isn't any way to add value, it is difficult to make a deal work unless you are counting on appreciation (don't) or you are able to also offset some of your own living costs (aka house hacking).
Good luck in your search!
