Let me take the property in 75002 zip code to do an analysis.
75002, purchase price 65k (market 95k) rent 1000 1.5%
From its market value, I am pretty sure it is located in east allen's poorest place (between bathany and beltline, either on the jupitor or allen heights, subdivision name might be greengate, built in late 70s early 80s).It is a working class community.
Let's crunch some financial numbers here
This type of property has high turnover rate, standard 11.5 month rent never happens.
Rent = 11*1000 = 11000 (1 month vacant)
Insurance = 650
Property tax = 2500
Maintenance cost = 800 (I take it as 800, my experience says this type of property with more frequest move in and move out, you should look at around 1200).
Income 11000, Expense 3950, net profit 7050
Purchase price 65000, with this type of property the reasonale expection is you need 15000 for remodeling. so your cap rate looks like 7050/80000 = 8.8%.
Not bad. But think about that if you are an investor from califoria, add these costs to your bottom line.
Management fee = 11*100 = 1100
leasing fee (usually 1 month rent) = 1000
Overhead cost for maintenance = 25% of 800 = 200
Extra cost for out of state owner = 2300
Your cap rate goes down to 5.9%.
If you leverage at 90% at 6% interest rate. It is not sustainable. That's why lots of california investers got busted. On the other hand it created values to local investor.
I will tell you guys next time how a california investor got busted and how the local investors took the advantage and made roughly 800,000 on 1 million in 2 years. It happened exactly 在我眼皮底下
