Buying rental property…here are the number
Question: I have been thinking about buying a town-house for rental property business. I spent time doing research about the rental market in this area and etc. I found a town-house in a good area of my town. Here is the info about this property:
It is a 2 bedrooms and 1 and 1/2 bath.
Rent: $630.00/month (Similar town-houses next block rent at this price)
Value: $77,000.00 (will finance 75K)
monthly costs: Mortgage interest and principal- $465.00 (30 year mortgage @ 6.25%) Property Tax – $75/month Insurance – $60/month (approx.) Maintenance – $100.00/month (approx) Advertisment and etc – $30.00/month (approx)
Total average monthly cost: $730.00 Out of pocket cost $730 – 630.00 = $100.00/month Vacancy rate in this area – 10% Average house price increase – 4.5%/year ( last 15 years) Monthly appreciation ( 77K * 4.5% /12) = $289.00/month
What do you guys think of this property based on the numbers I provided. Am I missing any factor? Based on these numbers, do you think it is worth taking the risk? What do you think the biggest risk with this property? Am I assuming something incorrect?
Please give me your opinion.
Answer: They do it all the time around here. Primarily because the job situation — not enough stable employment history and poor credit.
About 3 years ago, we had to relax our credit score requirements to get new tenants. The one’s with decent credit were able to get loans and were buying their homes. Starting about that time, banks were giving loans to *anybody*. The renters simply dried up. The only people left were those with a less than desirable credit history.
I’m still worried — It’s not good news to be renting to folks with lousy credit, but it hasn’t burned us yet. I figure, most people will let all other things slide (credit cards, loans, student loans, auto loans etc.) and make every effort to keep a roof over their head — e.g. pay the rent.
I’ve yet to determine if lowering our credit requirements is a bad thing. It’s gained us a ton more potential renters, but it may some day come with a price as we may get burned. At least for now, it seams to be working… I would argue that it is not high rent. It costs money to live in a home as well as a rented property. Over time, it comes out to be just about the same. With renting, you normally get a little smaller place, and have more things done for you. With ownership, you build a little equity over time, but you do more of the work yourself, and take more of the risk of problems.
People rent for many reasons. One is job instability. Another is lifestyle. Another is not wanting the responsibility of a home or not wanting to be tied down. Some folks are transients by nature. Some just never think of buying. Others have bad credit, low income, or can never save for a downpayment. And then there are section 8 folks, and welfare folks that cannot own any assets.
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