Potential property - advice?

[SGTech]

Hey all,



I have a potential property that I wanted to run by you as well as a few questions.



Listed for $165,000

Seller is willing to take $158,000

Insurance is $60/month

Taxes are around $150/month

Current renter is paying $850/month and is desperate to stay. Willing to pay $950.

Renter pays all utilities.

I can put up to $40,000 down which would give me a mortgage of around $540/month with the following terms:

Rate - 3.29%

5 year fixed.

25 year ammortization.

bi-weekly payments.

I figured my cash flow would be +190 if I get it for $158,000 and the seller is quite motivated to sell so I may be able to get it for less.



Now my questions. The town is in Southwestern Ontario and is growing moderately but it by no means booming. Housing prices are increasing about 3% per year but the prospect of a solid tenant, whom I know personally and a motivated seller has me thinking that this might be a nice first property for me to get under my belt and leverage for future properties.



I appreciate your thoughts.



Scott.

 

[housingrental]

I would not buy this property

 

[SGTech]

Hi Adam,



Thanks for your insight. Is your decision based on cash flow, potential appreciate or both? Do you have a drop dead number in regards to cash flow that you won't go under?



Scott

 

[Alvaro Sanchez]

Based on my calculations, you would be -200.00 every single month. You need to budget property mngt, vacancy, repairs and conservative interest rate (5%). You would need to rent it at $1150 to break.

 

[Thomas Beyer]

Cash-flow is an estimated number at best, as you cannot foresee vacancies nor repair and maintenance (R&M) costs. You may have 18 months of awesome cash-flow as R&M is nil and vacancy is zero; then "boom" two multi-month vacancies with an associated $12,000 repair bill. Plan your leverage and reserves accordingly.

 

[jayMichaels]

Always factor in



1.Vacancy rate, regardless of tenant staying. I factor in 5%, even in 1% vacancy areas

2.Property Maintenance 5% (or higher if older home)

3.Property Management (if not managing, check your local management rates)



Even at your 190/month cashflow, your cash-on-cash is near 6% Which after factoring 2 out of the 3 items above, will most likely bring this to half that, maybe even eliminate your cash-flow. So you would be buying on speculation that appreciation will go up 3% on average per year.



I think you can do a little better,



Good example tho

 

[Rickson9]

Terrible investment/ROI. Adam is right. I would pass since I actually LIKE money.

 

[SGTech]

Thanks very much for the advice guys. I will give it a pass.



Scott.

 

[invst4profit]

I agree wholeheartedly with the previous posts. In addition you mentioned that you know the tenant personally. That may be a potential problem for you as a landlord. Never rent to friends or relatives unless you don't care if the relationship goes sideways.

Being friends with a tenant can make it difficult to operate a business to it's maximum potential.