I currently have 0% real estate exposure (aside from primary home), all in on equities. My goal is primarily to diversify from equities with a house I hope will have in-line or better price appreciation, and financially I'm fine with negative cash flow, though would love to cap it up to $500 or so. Here are the details:
- Single family home in one of the best suburbs in Columbus OH, top 5 school district, 25 minutes from downtown, house is newish and turn key, nice finishes. I'd be comfortable living in this house as-is. It's a few minutes from a cute historic downtown, and is in a planned community with a community pool etc. The streets and other houses are very nice
- Cash down would be a % of my total portfolio that I'm totally comfortable with, this wouldn't stretch us whatsoever
- $375k, 25% down, 30y mortgage
- $1770 P&I, $330 property taxes, $40 HOA, $90~ homeowners insurance
- Expected $2,300 rent
- That implies positive cash flow – a whopping $70 a month. Obviously any repairs, vacancies etc put me in the red. I am comfortable with negative cash flow (to a degree, obviously). I'm assuming 3% annual rent growth and that over the next 5~ years mortgage rates will slowly go down, allowing me to refinance
The market might crash a nanosecond after I sign the deal, I'm OK with that (at least I think I am), nobody knows.
How does this look like from a RE investment perspective?
Is this deal reasonable?
byu/Junglebook3 inrealestateinvesting
Posted by Junglebook3
5 Comments
Buying a turnkey single family rental in Ohio is such a boneheaded move. Go buy a multi family
If you furnish it nicely you can make good money doing month to month with Furnished Finder – those are mostly travel nurses. Highly recommend
I’d say keep looking. You’re not getting a great deal on this house. While a 1% rent rate is harder to come by these days, this is far from it. B and C neighborhoods tend to have better deals. Look at various rental investment calculators online to see the cash on cash return and cap rate.
I’m in the same boat as you, buying a few properties to diversify. But you do need to factor in management, repairs and capx otherwise you are just wasting your time and money. There are better deals to be found with some time put into it
“Is this deal reasonable?”
Thats a no from me dawg. I don’t know how much experience you have as a landlord, but assuming you will be managing yourself, you can expect that the range of tenants you may end up with is wide. The point of cashflow isn’t *just* to make money each month, but it’s to pay for the things that come up. Every appliance, the roof, the AC, the flooring, paint, cabinets, plumbing, etc, is all getting older the day you take over and depending on how long you hold the property, WILL have to be replaced. Even during tenant turnover you will need to be ready to come up with at least a few thousand to cover basic stuff. These are all the *best* case scenarios.
On tope of it, I am assuming you are not getting a discount on the house, which means you need to get at least enough appreciation to cover the transaction costs if this experiment fails (6% for realtors, 1-2% closing costs, plus holding and staging costs). At $375k, you probably need the house to appreciate $40k just to break even.
There are so many more things that can go wrong than can go right with these numbers that I would not settle for a mediocre deal. If you like the area, start looking for expired listing or make offers at a price that makes sense until you find a good deal. Look for houses in pre-foreclosure, or sitting on the market for long periods. Or offer cash prices for big discounts and fast closing and then use hard money to purchase and refi out of it with a traditional loan.
You will regret such a lack of cash flow, are you so certain of appreciation?