Need Advice!
I am looking to purchase my first rental in a nice lower/middle income neighborhood I have been studying for some time. The house is in great condition and is rent ready, just needs to be swept out and some minor cosmetics. It is near schools and public transportation. The seller is motivated and I have negotiated a purchase price of 96,000 which is a good price considering the homes condition and neighborhood (comps are around 110,000 to 115,000). When running the numbers and factoring the rent rates for the area my cashflow will only be about $150/month after PITI on a rent of $950 - $1000. This is less than what I would consider acceptable but what I am looking at is the long term benefits. The neighborhood has been appreciating steadily and there are a lot of rehabs going on in the area, plus a builder just began building brand new homes less than a mile away that will be starting in the 160's. I know a lot of landlords have specific formulas they use to determine an acceptable cashflow, but I was curious on anyone's thoughts of the overall deal for long term. As a landlord would you accept minimal cashflow if the long term benefits were there?
I usually shoot to make about 2% of the purchase price a month in profit. On a 98k house that's about $180.
For me, real estate isn't won by hitting a home run but with a lot of base hits. This sounds like a pretty good investment to me.
I'll repost where someone said that there are 3 generic ways to make money in real estate.
CAT:
Cashflow
Appreciation
Tax Advantages
Don't get locked into the idea that cashflow is the only way to make money. With some forcasting abilities you will be able to make much more money.
Think about it, $200 a month is only $2,400 but the average 7% appreciation is $7,000. In a hot market your getting 10-12% which is 5 times your monthly rent.