Serious Buying Question Here
I live in an area where house values range from 60,000 (av low end home to 300,000 av high end home) with most houses costing about 130,000. Everyone talks about getting average to good homes, updating them then renting them to make the mortgage payments. I have not been able to get the numbers to work and still be able to rent them for enough to cover MP+INS+Taxes any ideas here are the average numbers...
Found property for 119,000 FMV 125,000
119,000 + 15,000 improvments = total 134,000 @ 7.5% mortgage for 20yr is
$1079.00 66mo tax 33mo ins total out of pocket Month 1178.00 on a property that may comand 1200 to 1275 per month.
not even factoring in time not rented this makes the deal way to close for me.
Anyone have suggestions or have you face same issues and overcame them if so How ?
Thanks
To be sure, homes priced on the bottom end of your price range will be teasier to rent with positive cash flow each month. I love more expensive homes but the real money is in the lower priced ones.
Not much wiggle room there. The only reason one would consider the deal is if there is reasonable appreciation in the market. No appreciation=No Deal.
[addsig]
First of all, you need to find motivated sellers. If the homeowner wants 119k for a home worth 125k, he/she is not a motivated seller. You need to find better deals because the money is made on the buy end.
Another thing you might want to consider is getting a mortgage for 30 years not 20. This could lower your payment substantially. Good Luck!
Hey,
Maybe I missed it, but you are buying a $125K for $134K. That doesn't make any sense, which is why you can't rent it out for a profit.
The quick and dirty rule of thumb is a home purchased at FMV and rented it for 1% of the FMV is at breakeven (on a 30 year mortgage) for an investor.
$15,000 is a lot of fix-up. Be careful not to upgrade too much since you can't always get it back, especially on lower end homes. If it needs $15K, pass on this deal. It's too much cash to tie up with no equity. Real estate is a numbers game. Sift through a lot of sellers to find the motivated ones. There are deals out there.
I second the advice about going with a 30 year mortgage. It will increase your monthly cash flow. And since you aren't paying the mortgage, your renters are, why worry about the extra interest?
Q
Allthough it was not your question, I would like to remark that as an Investor you work by the rule that your profit is made when buying.
When you include closing costs and rehab, your cost price will be 10% over FMV.
If that is a typical "good deal" in your market, so be it.
But I recommend that you negotiate further and seek to lower your purchase price to no more than 70% of FMV. The cushion you create by doing this, may come in handy one day when you want to dispose of the property.
[addsig]
Hmm. interesting comment by Bruce. Hey Bruce, how would you characterize LA and NY people that buy condo for about 300K and then can't rent it for more the $1,500.00 bucks/mo. In your opinion, when they going to brake even? Ah, and I forgot PITI, HOA and other maintenance, that comes out of pocket after the mortgage is paid more then rent you'll get. I guess Lucius Maximums was right to study algebra in his elder life and he's right to call where we live the LA LA land. It really is and it cry for cheep housing in the form and shape of the ISO container houses! Everyone should have one at list as an investment.
You go to look how can you make the room. How about you make the offer content on inspection. When the inspection is done $15K in repair is reviled. You ask the seller to pay for it out of the escrow ig he wants to save the deal. The power of psychology will always fawor you the investor since no seller really like to lose the buyer who is about to open en escrow. Try then let us know how did suggestion work for you.