A while ago I wrote an article taking a look at purchasing single family homes as rentals (a very popular article for this site). I put some hypothetical numbers up, and I came to the conclusion that being a landlord is simply not worth it. I revisit this topic today and I’m certain this will not be the last time I talk rentals.
This unit is located in a neighborhood called Oakley. Oakley is viewed as a possible up and coming location in Cincinnati. It has a fantastic commute to downtown and a great neighborhood feel. It is located next to the Hyde Park neighborhood which is generally known as one of the best near downtown neighborhoods.
This 2-one bedroom property has newer furnace (2005), newer roof (2000), and New Kitchen and appliances (2007).
Asking Price: $70,000 – Most likely willing to sell for more like $60,000 – $65,000.
Let’s say for the numbers purchases you purchase them home for $60,000 with 20% down. Taxes are $1840 a year. Insurance is $700 a year.
Mortgage: $60,000 – $12,000 = $48,000 – @ 4.25% 30-year = $236.13 a month
Insurance: $700 a year / 12 = $58.33 a month
Taxes: $1840 a year / 12 = $153.33 a month
3%** Property value in yearly maintenance = $1800 a year / 12 = $150 a month
** I recently read on several real estate blogs and sites that 1-3% is the approximate cost of maintaining a rental property, to be conservative I’m taking the full 3%
Monthly Cost: $597.79 – Let’s call it $600 even.
Rent for these units: Probably going to be $500 – $600. Let’s assume 90% occupancy @ $500 a unit.
$600 – $900 [$1000 * .9] = $300 a month net, or $3,600 a year.
Amount of Equity in the first year: $812 equity built.
Amount of Tax benefit @ 28%: ($60,000 / 27.5) * .28 = $610.90 tax benefit.
With no repairs, no rehabs, no closing costs, no disasters above the 3% budgeted maintenance – you are going to net approximately: $5,023 [$3600 + $812 + $611] – Now this is not cash in hand – $812 is unrealized equity.
Furthermore if you assume a 5% rate of return – the $12,000 down-payment’s opportunity cost was $600.
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