On multi-unit residential and commercial deals you typically, gauge the deal according to a cap rate, but on a single family rental how can you tell if you have a good investment?
I just look at the amount of cashflow per month that it will generate, typically it will make the cap rate look good automatically. We shoot for a minimum of $150 per unit (whether a house or duplex unit) per month.
[addsig]
I appreciate the reply, but let me give you a little more info.
Subject: 2 bdrm/ 1 bath, located in a University campus area. Needs a new roof (approx. $3,500)
Rent $650/mo. no utilities included.
Asking price: $75,000, but the seller is take $72,000 all cash AS IS.
PITI $500
At a 10% Cap rate the property is only worth $65,000
And the only expenses I deducted so far is the PITI of $500.
Is this really the best way to evaluate a SFR.
[addsig]
That is one way, another way is to calculate the mortgage, insurance, taxes, vacancy rate, repair rate and subtract that from the monthly income. I can tell you that a place that made 650 a month, I would not buy for more than 50k unless there was something special about it, like very high appreciating area or if I knew that rent was low.
I just look at the amount of cashflow per month that it will generate, typically it will make the cap rate look good automatically. We shoot for a minimum of $150 per unit (whether a house or duplex unit) per month.
[addsig]
I appreciate the reply, but let me give you a little more info.
Subject: 2 bdrm/ 1 bath, located in a University campus area. Needs a new roof (approx. $3,500)
Rent $650/mo. no utilities included.
Asking price: $75,000, but the seller is take $72,000 all cash AS IS.
PITI $500
At a 10% Cap rate the property is only worth $65,000
And the only expenses I deducted so far is the PITI of $500.
Is this really the best way to evaluate a SFR.
[addsig]
That is one way, another way is to calculate the mortgage, insurance, taxes, vacancy rate, repair rate and subtract that from the monthly income. I can tell you that a place that made 650 a month, I would not buy for more than 50k unless there was something special about it, like very high appreciating area or if I knew that rent was low.
GL
[addsig]
I agree with Ray. That's too thin... I wouldn't pay more than 50k for something with a rent of $650.