Single Family House Analysis

July 16, 2013:

One of my property managers sent me this HUD listing for a 3 bedroom, 1 bath house with a detached garage.  Asking price is $32,200.  Below are 2 pictures.

The house has been on the market for 131 days, which means one thing – it is overpriced.  My property manager thinks I could get it for $25,000.

Total cost would be $41,000.  Rents would be $850-$900 a month.  Here are the numbers for an all-cash purchase.  I’ll use the lower $850 number for rent, to be conservative, and $41,000 as the purchase price so it includes all repairs.

TRANSACTION AMOUNT
Monthly Income: $850
Gross Annual Income: $10,200
Monthly expenses:
Property management: $85
Property taxes: $150
Insurance: $40
TOTAL MONTHLY EXPENSES: $275
NET INCOME: $575
ANNUAL NET INCOME: $6,900

 

Gross rent multiplier (GRM) = 4.02. Under 10 is generally good.
Cap rate = 16.8.  9 or more is generally good.
ROI = 16.8. Because this was all-cash, the cap rate is the same as the ROI.

This little house is a good moneymaker.  Excluding any ongoing repairs and maintenance, you would receive your initial $41,000 investment back in about 6 years.

 

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