Rental investment question

**Kirk** · 02-23-2009, 11:44 AM

Hi guys,

I have a question about a rental investment opportunity. I was wondering if any of you experts could help me make this decision.

There is a person selling her Duplex for $120,000 and she has it already rented out for $1100 per month ($550 and $550 on each side).

I think I could offer her $110K or lower.

The renters both have been there for many years and always pay rent on time.

The house was assessed just last month for $110,000. The taxes are fairly low I believe $1000 Per year.

The house has a new roof and upon inspecting appears to be in excellent condition. The area is near a lot of business so renting shouldn't be a problem if a 1 of the two renters split.

How much cash flow should I figure into a rental like this to buffer any emergency's and upkeep? I know there can unexpected problems being a landlord, so what is the formula here for making a sound decision on a rental investment? I am a handy man so most of the repairs I can do myself.

Lets break it down:

House: $110,000
Tax/year: $1000.00
Rent received: $1100.00 per month

Any advice would be very appreciated.

Kirk

**AugustaREGroup** · 02-23-2009, 01:35 PM

Offer lower.. Why is she selling a potentially pos. cash flow rental in the worst market?

**agentsranking** · 02-23-2009, 06:57 PM

I always figure one month a year vacancy in all of my units. I've held rental property for about six years and this has been a pretty accurate assumption. Usually the first year I buy a property I plan on spending at least a few thousand dollars for improvements and after that I plan on about $500 a year per unit however a terrible tenant can cost you thousands of dollars in repairs and potentially thousands of dollars in court and eviction fees. Prepare for the unexpected or you can lose your shirt in real estate rentals.

**Kirk** · 02-24-2009, 04:48 AM

Originally Posted by AugustaREGroup

Offer lower.. Why is she selling a potentially pos. cash flow rental in the worst market?

She is selling because she is moving over seas for work. At first I thought this was BS but she explained and showed us where she was going, shes on contract for the military. I am definitely going to offer less money. she's leaving in a month and told me she will just get a property manager if she can't sell them in time.

My only worry is this property depreciating even more over the next 4 years becuase if the insane economy.

**Kirk** · 02-24-2009, 04:56 AM

Originally Posted by agentsranking

I always figure one month a year vacancy in all of my units. I've held rental property for about six years and this has been a pretty accurate assumption. Usually the first year I buy a property I plan on spending at least a few thousand dollars for improvements and after that I plan on about $500 a year per unit however a terrible tenant can cost you thousands of dollars in repairs and potentially thousands of dollars in court and eviction fees. Prepare for the unexpected or you can lose your shirt in real estate rentals.

Great advice!

I will take this into mind. Luckily one tenant is and old lady, pays on time and does not want to move. The house is in decent condition, new HVAC and roof. As for eviction fees, I guess I can't avoid the chance of this happening accept to screen the tenants really well.

I'm going to offer a stupidilly low offer and see what happens.

**thomas12** · 02-24-2009, 10:52 PM

I think it depends upon your requirements as such. The value is excellent, and I feel you can expect around $1000.00 as such for the rent per month.

**lisad** · 02-25-2009, 10:16 AM

Don't forget to figure the cost of insurance. Also the cost of borrowing your money. How about if she'll carry a mortgage? Either 1st or 2nd, you can really get a good rate. Personally, I'd figure 2 months vacancy (1 for each side-to help cover the cost for eviction & some marketing. Our county charges $250 just to file for the eviction). Personally, I'd offer a lot less. Good luck.

**MinnesotaPropertiesOnline** · 02-26-2009, 10:14 AM

What do the comps tell you its worth?

**REI GIANT** · 03-01-2009, 03:52 PM

Kirk,

The rule of thumb that I use when purchasing real estate to buy and hold is the following:

If the pruchase price is $100,000.00 and the property does not need any repairs then the property should rent for $1500.00 per month( purchase price x 1.5%). If the property needs any repairs add that to the purchase price(purchase price+repairs x 1.5%=RENT). I have bought 100s of properties using this formula and it has worked very well. There are too many great deals out there to settle for anything less.