All Forum Posts by: Chris M.

 I was planning on using a home equity loan for the entire project, purchase + rehab.  So I wouldn't necessarily have to come to the table with any cash.

In terms of maintenance/repairs I had assumed 2000/year.  Does that seem too low?  I had read somewhere that some people use 1% of home value as an annual budget for fixing/repairing/maintaining the home.  

It's possible, but hard to verify.  The street is only 2 blocks long because of the geography (start of a big part on the one side, and a transition to another town+commerical property on the other).  

I've been trying to see if there is any way to find old rental listings but in this town of 15000 people, right now there is not 1 single SFH for rent (or at least listed on any of the major sites), just to give you an idea of the low volume of rentals.

I know someone who's on another different busy (busier this this one) street renting a 3/2 unit in a side-by-side duplex for 1500/month. The benefits of this house over that are 1) its a SFH rather than a duplex, so you aren't sharing a building/driveway with another family, 2) this house is a good chunk bigger in terms of SF, 3) the duplex has 2 outdoor parking spots, this has an attached 2 car garage, 4) the duplex has no real yard but the SFH has a nice sized fenced in back yard, 5) less traffic at night on the street (but still these are both on busy 4 lane streets).

I'm assuming 1800 because I think that's a safe bet.  I'd be pretty surprised if I had go drop to 1700, but not very shocked if I got 1900-2000 for it.  Trying to play it safe in my head.

I know for sure these numbers won't seem as great as a lot of the people who post on here (e.g. 42k purchase price, 1200/month rent...).

I'm looking at a 3bed/2bath for 160k with probably 30k of repairs/fixes/updates needed.  Fantastic local schools, parks.  After repair value would probably be 250k+.  It would be worth 100k more but it's on a busy street.  I'm expecting 1800/month rent, maybe more but again the busy street thing makes me question rental comps that aren't on a busy street.  I'd guess 2200-2300/month if it were one block in.  I'd be financing it myself with a home equity loan.  

Purchase: 160k

Fixup: 30k

Annual Interest Payment @ 3.5%: 6650

Insurance: 1000

Taxes: 5900 (I think there is a good chance I could appeal these down to about 4900 in time)

Annual Maintenance Allowance: $2000?  (1% of property?)

Assumed vacancy: 1/2 month

Expected rent: 1800

Income with 95% tenancy = 20700

Expenses + Expected Maintenance = 15550

Cash Flow= 5150 annually. 

The 5150 doesn't cover any of the loan principal.  I'm only required to pay interest so I could use this 5k to pay down the principal or do something else with it.  

This is the only thing I've seen in my neighborhood for some years that has come even close to the "1% rule". Most SFH that would sell for 300k rent for 2200 with 7000/year property tax where I live. So I'm thinking really hard about this one as it seems great compared to pretty much everything I look at, but overall I know it's nothing special compared more investor friendly states.

@Account Closed the cashflow was based on debt service of 340k @ 4% = 13,600 + 6000 taxes + 1000 insurance + 3000 estimated maintenance = 23600 and the low side of rent would be only 2200/month => 26400 which would be a couple thousand more than expenses. But I agree that margins are too thin.

@Account Closed we borrowed the full 340k against our own home equity, so right now we are paying between 3-4% on that money, but as I have said those HELOCs are adjustable. I could possibly get a traditional mortgage on the place but I'm guessing the rate would be closer to 5 and there would be closing costs to push the numbers further in the wrong direction.

If we sold right now we'd be within the 1 year window so we'd pay short term capital gains, but if we are only making 20k the difference in tax amounts wouldn't be as great as if we are selling at a 100k profit.

Another option would be to try to rent it for 2500 and see if we get any interest. If not we could fall back on selling.

The house won't be completed until September or maybe even October. I'm a little concerned that we would be selling a family house in a great family neighborhood outside of the summer months. I'd rather sell when families are moving most during the summer months.

@Bill Coleman

While I'm starting to think that you are right that selling would be the preferred strategy, can you elaborate on the 255k financing being cash flow negative? What numbers are you using? 30 yr mortgage for 255k @ 4% is 1217 /month or 14604/yr, + 6000 taxes + 1000 ins + 3000 maintenance = 24604 or 2050 / month, which is less than the low end of the expected rent. Do you have other things included like some vacancy or higher maintenance costs or am I missing something?

@Martin Scherer they are tied to prime, adjust monthly and have no cap on how much they adjust each month as far as I can read. I could look for a more conventional mortgage but I would assume that would make the numbers even less favorable, unless I were to hold it for a long time and interest rates & rental prices were to climb.

If interest rates were to change I could always sell, but that would put me at the mercy of whatever the current market is at that time, which, if rates are jumping, might not be a good time to sell.

@James Wise would that include repairs as well? Stuff like replacing the roof (although, I'll probably be dead before this will need replacing).

bought a SFH, with the intention of fixing it and renting. We are well into the renovation and things are not really looking very rosy. In hindsight, we allowed ourselves to put too much scope into the renovation, and cost overruns have caused our planned investment amount to balloon to 340k. At the same time, we had been basing our expected rental rate off a similar but smaller house on the same block which was leased 2 years ago for 2400/month, but they just put it back on the market for only 2150, which concerns me about the possibility of us getting 2500-2600/month, which is what I'd estimated.

The numbers I'm using are:

Invested: 340k

(financed with our personal home equity loans @4% +/- but those are adjustable rates)

Expected ARV anywhere from 350-400k.

It's really hard to guess at this because this house has no basement and almost all the other houses in the area do. Personally I'd never buy one without a basement, so it's hard for me to look at it and compare it with all comps with basements. One smaller house without a basement recently sold for 330k. Our house will be maybe 25% bigger and more updated.

Property Taxes: $6000

Insurance: $1000

Maintenance: $3000?

Monthly Rent: 2200-2500

So based on these numbers, we would be cashflow positive by a couple thousand.

I'm hoping that maintenance for the first several years will be less than 3000/year as much will be new (appliances, bathrooms, plumbing, furnace, AC, water heater,roof).

Another mitigating factor is that I think this area is set to appreciate in value quite well. There is a lot of home improvement activity in this area. There are quite a few instances of homes getting additions and smaller houses being torn down to build new going on in the vicinity of this house.

We could just sell the house but I figure we'd end up paying something like 20k in closing costs, so if we sold we could end up with 10-30k in profit. Much lower than we expected when we started this project, and a pretty small return for such a large effort. But hopefully still a profit.

We are not full time investors, so by having this money tied up in a less-than-great deal isn't really preventing us from buying other properties or the like

So, if you were me what would you recommend? Cut bait and sell, or hold onto it at a slim cash flow rate and hopefully enjoy some appreciation in home values?

The online listing is meaningless. All that matters is the lease.