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 needs quite a bit of work. As you can see, there is no ceiling in the front part of the house, due to a roof leak that was fixed. We got an estimate of $16,000 to do all repairs.
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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