 Profit margin (by Mark [NY]) Jan 21, 2018 9:47 AM
 Profit margin (by Rodney [PA]) Jan 21, 2018 11:30 AM
Profit margin (by Homer [TX]) Jan 21, 2018 11:38 AM
Profit margin (by NE [PA]) Jan 21, 2018 11:39 AM
Profit margin (by Rodney [PA]) Jan 21, 2018 12:06 PM
Profit margin (by GKARL [PA]) Jan 21, 2018 12:11 PM
Profit margin (by OKHMBLDR [OK]) Jan 21, 2018 12:41 PM
Profit margin (by Robert J [CA]) Jan 21, 2018 1:12 PM
Profit margin (by Robin [WI]) Jan 21, 2018 4:41 PM
Profit margin (by S i d [MO]) Jan 21, 2018 6:58 PM
Profit margin (by Luba [NY]) Jan 21, 2018 8:31 PM
Profit margin (by S i d [MO]) Jan 22, 2018 4:31 AM
Profit margin (by LisaFL [FL]) Jan 22, 2018 4:50 AM
Profit margin (by Luba [NY]) Jan 22, 2018 6:08 AM
Profit margin (by Mark [NY]) Jan 22, 2018 6:51 AM
Profit margin (by Chris [CT]) Jan 22, 2018 11:39 AM
Profit margin (by Pmh [TX]) Jan 22, 2018 12:11 PM
Profit margin (by Mark [NY]) Posted on: Jan 21, 2018 9:47 AM
Message:
When looking at potential investment properties, do you guys have a target profit margin from a monthly perspective that you use as a guideline to help you determine if it makes sense to pursue a property?
In other words, as a landlord, what would you consider to be a solid profit on a rental that makes it worth while on a single-family property? I'm considering my first purchase on a modest 3 bed/2 bath home where they are asking $60K. After my 25% down, I'm looking at a mortgage of under $550-575 after taxes and ins, which means I'd be clearing about $200/mo. when rented. Worthwhile? --71.115.xxx.xx |
Profit margin (by Rodney [PA]) Posted on: Jan 21, 2018 11:30 AM
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Profit margin (by Homer [TX]) Posted on: Jan 21, 2018 11:38 AM
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200 per month is a little thin. Personally at this time in my career. I would pass. However, looking back at my very first deal with 5 percent down on an 81k house, I was clearing about 275 per month the first couple years. Now that house is clearing 500 per month 15 years later. Now days I only buy houses that will clear me at least 900 per month, but I have been able to pay cast for the past 8-9 houses. YMMV --75.141.xxx.xxx |
Profit margin (by NE [PA]) Posted on: Jan 21, 2018 11:39 AM
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When I first started, yes. Now? No. --50.107.xxx.xx |
Profit margin (by Rodney [PA]) Posted on: Jan 21, 2018 12:06 PM
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My first purchase in 2012 is quite similar to yours. My purchase price was 89k with 20% down. Mortgage payment of $520/mth. I was clearing $300/ mth. After your 25% down, the monthly payment seems high. Even with tax/ins being escrowed unless it is a 15year mortgage. --174.59.xxx.xx |
Profit margin (by GKARL [PA]) Posted on: Jan 21, 2018 12:11 PM
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Not enough. I would need to clear at least $ 500 monthly for it to be worth my time and even that is somewhat thin. --172.58.xxx.xx |
Profit margin (by OKHMBLDR [OK]) Posted on: Jan 21, 2018 12:41 PM
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Look at it this way; you have $15000 invested. You will net $2400/year. That's about 8% on your money. And if you loose two months rent....you're in the hole for the year.
I really think you need a much better return on your money. Several stock market accounts will get you your 8% return, and you don't have to do anything. --174.67.xx.xxx |
Profit margin (by Robert J [CA]) Posted on: Jan 21, 2018 1:12 PM
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When I purchased my first home some 40 years go, before my "Tax Write Off's" and "expenses", my expected return was 8% based on my "total down payment and closing costs".
Soon after I learned I had to "think" outside the box to make any kid of return due to competition that will buy anything at almost any price -- I mean people will over pay to enter the real estate market.
An investor makes money on the purchase and won't wait 10 years to break even on the rent to expense ratio.
Now when I buy a property, as a contractor, I will have a plan set in motion that will "add value" so I can bump the rent or sell at a profit. --47.156.xx.xx |
Profit margin (by Robin [WI]) Posted on: Jan 21, 2018 4:41 PM
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I don't see any allowance in there for repairs. I would budget at least $1000/yr for a modest SFH. How old is the roof?
I've come to realize that it doesn't matter how much you collect in rent, it's going to cost the same to replace the roof or repaint the inside whether that 1200 sq ft house is renting for $750/mo or $3000/mo. So the house that doesn't rent for much better be a lot cheaper than the house that rents for a lot.
Also, it takes the same amount of effort to screen, collect rent checks, schedule contractors, etc. $200/mo seems pretty low, and that doesn't factor in unplanned repairs and maintenance.
My rule of thumb, like many other investors on this board, is 2%. If the expected rent is $800, then you shouldn't pay more than $40K. If you can charge $1000, you could pay 50K all in. For this deal to be viable, you need to get the price down. --204.210.xxx.xxx |
Profit margin (by S i d [MO]) Posted on: Jan 21, 2018 6:58 PM
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Several expenses are missing:
Vacancy 5%
Maintenance/supplies 10%
CapEc reserves 5%
Management 10%
You must include all of these expenses even if you are self-managing and/or doing your own maintenance. That is how an investor will value the deal: donated labor must be counted/paid.
I can't tell for sure what rent you're getting for rent, but it sounds like about $750. So we'll use that in our calculation. Subtract 30% of gross rents ($225), and it appears that on an average month you'll be going in the hole about $25.
I use the 2% rule as a starting point to evaluate deals. The rent must be at least 2% of the purchase price, plus rehab, and acquisition costs. For $1000 rent, I won't pay any more than $50,000. If he rent on this house is $750, pay no more than $47,500.
This house as it stands is 1.25%. You'll be paying monthly to own it as well as have a big chunk of money tied up in it.
Pass.
--173.17.xx.xx |
Profit margin (by Luba [NY]) Posted on: Jan 21, 2018 8:31 PM
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Mark, in different parts of a country percentage is different. Some is looking for 2% and in my part of America even 1% is not real unless it is in off market or need a total renovation or in a war zone.
Make sure to add numbers Sid mentioned. --69.120.xxx.xxx |
Profit margin (by S i d [MO]) Posted on: Jan 22, 2018 4:31 AM
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Luba, would you be willing to share numbers on one of your places? I would like to see how a 1% or less property performs outside of my spreadsheet. --173.17.xx.xx |
Profit margin (by LisaFL [FL]) Posted on: Jan 22, 2018 4:50 AM
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Dont forget that a portion of the mortgage payment is principal so that is part of your profit as well.
I have bought plenty of houses where my after expense income was less than what you described. Based on what others here have described I made bad investments.
Based on your numbers and not considering the things you forgot you are spending $15000 of your own money to earn $2400 a year. That's a 16% rate of return on your money. I would have done that in a heartbeat.
I bought a house with almost identical numbers in 2010 that is now worth twice what I paid for it. So there is potential appreciation value missing as well. --173.170.xxx.xxx |
Profit margin (by Luba [NY]) Posted on: Jan 22, 2018 6:08 AM
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Did, I am too new to teach. I know, 2% is much better than 1% , but in my spooky place 2% just not exist.
I just checked listings now.
3 bedroom 2 bathroom 1400SF cost $359,000
Taxes around $12,000
Need total renovation because last time it was in fifties or maybe beginning of sixties. Outside oil tank (good not underground).
Good luck renting this house for more than $3,500 and it needs to be crazy to ask $7,000!
My idea is to look for multifamily, self manage and try to do maintenance.
On the other side - refrigerator or stove will cost the same for any house, but with higher price it will be lower percentage.
It is “B” neighborhood and “C” house.
--70.214.xxx.xxx |
Profit margin (by Mark [NY]) Posted on: Jan 22, 2018 6:51 AM
Message:
Thank you as always for the helpful advice. My goal has been all along to find the right 2-family to start this venture out with. Single family houses make the numbers much tighter, but saw a potential deal so was curious if I should make a run at it or continue to hold out for a 2-family. This is great information. Thanks all. --71.115.xxx.xx |
Profit margin (by Chris [CT]) Posted on: Jan 22, 2018 11:39 AM
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I shoot for 1%, 2% is unrealistic on the coasts unless its in a war zone or you get the deal of your career. --24.45.xxx.xx |
Profit margin (by Pmh [TX]) Posted on: Jan 22, 2018 12:11 PM
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many here not considering the long term cash flow possible on the property regardless of ratcheting up rents in the future on top of a fixed mortgage payment. If the 200 per mo is what you clear now then yes, a good start. could you find a cheaper place with same flow. sure. maybe next year or year after. you need to start now. offer 50k and meet in the middle. I look at cash on cash return. so calculate the annual rent over the down payment, rent is paying the mortgage, tax & ins. so no $ out of pocket..that is the way I look at it. would I mess with 200 now, no, but you have to start sometime. so yes. as we all did here. Do not go by % eg 1 or 2...them no one would ever buy in SF or NY.....those ratios are nonsensical, always look at cash on cash, and cf with alternatives places to park your $....use opm to create your long term wealth, at rates of 3.75-3.85 on my rentals it is a no-brainer... --166.137.xxx.xxx |
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