State Specific Question About: MASSACHUSETTS (MA)

Can you help me evaluate this -

single family 1960 ranch purchase price $215k needs $25k in cosmetic/kitchen updating. Rent estimated $1800/month. taxes $3,200. After updating - $285k

I'm trying to build my long term investment property portfolio. This might not be a home run but I'm willing to "hit a double" if it will appreciate over the long term.

If you plan to do it again and again, I can email you the excel spreadsheet that I use to evaluate deals.. pretty accurate.

Assuming 25% down, after PITI, vacancy/maintenance and reserve, your cash flow is about $400 a month. (quite some assumption on the insurance $1500?, and vacancy 5-10%)

That is an INSANE amount of money invested for that monthly rent less expenses!!

I have 2 houses here rented for $745 and $875. Combined mortgages $84,000.

I don't know about your market, but I would consider that a foul ball.

Is that all cash purchase? What's your monthly cashflow?

Every location is different. I would not be interested in your property as a flip or a rental. As a flip, I would be interested if I believed I could net 90k. As a rental, it would need to rent for about 3.5k/mo.

I'm not on either coast, and do not factor in appreciation at all.

YMMV

Massassachusetts option or opinion?

Either way, unless that's common numbers in Mass., it's a bad investment.

So bought and fixed you have $240,000 in, $285,000 in value. $45,000 in equity. If you end up not being able to rent this out and need to dump it, you have minimal equity to move. Your commission and closing costs will wipe that out.

Say you have all $240,000 invested in cash with this deal.

Say you can get it rented for $1,800, which you might not be able to. It may be $1,500, even $1,200.

But lets say $1,800.

You need to back 25% off the top of that for vacancy and maintenance. Now your down to $1,350 to work with monthly.

Back taxes off of that. That's anoth let $265 a month gone.

So now your working with $1,085 a month.

Now insurance, say $100 a month for something of that value roughly. You're at $985 a month to work with.

Over a year. $985 is $11820 a year in income. Barring any other unforeseen expenses.

That yearly income is only 4.925% on your $240,000 cash that is now tied up in this deal.

Without pulling a mortgage to get your capital back, it will take you 20 years to get your money back.

If you do pull a loan on this, say 20 year loan at 6.5%, they're only going to give you 25% of the value.

So $213,750 if you even qualify for that loan.

Payment will be $1,500 plus a month.

Now take your $985 cashflow from before and back out the mortgage payment.

You are now at -$515 a month.

So, it's still a bad deal.

Are you looking for a Massachusetts option or opinion?

I never paid all cash but usually 10 to 20 down. If it. netted 8 to 12 percent to start and let the tenant buy the property for me I was a happily camper. Depreciation and increase in rent down the road were the icing on my real estate cake.

Rim, if you can make 30k as a resale, then that is the only $$ this house will ever make you. As previously stated, expenses take this into the arena of Rim has to feed it.

I get it that you want to speculate on price appreciation, that sure doesn't seem like a given based on your description, and mortgage rates sure won't be cheaper in the future....Your locale doesn't sound suitable for buy/hold.

Elliot - I would love a copy of that excel spreadsheet. rlm4646 g mail.com

Suzanne - my long term goals are to live off my rental cash flow. i'm 50 I have rental cash flow of $3500/mon now and would like to reach $10k/mon. (1) 4 family, (2) SF. Cashflow is best on the 4 family but appreciation is better on the SF's. I only buy SF with great bones. 1960's are my favorite.

NE - $1,800 is a conservative rental number, the property is in a working class neighborhood. Owner was 90 and kept it in impeccable condition (new roof, new furnace, new driveway, prof. landscaped. 1960 kitchen and bath, HW everywhere under carpet.

The coastal markets seem more concerned with appreciation whereas in the Mid West we based it on cash flow. In my town, I use the 2% rule combined with the 7-year rules.

2% rule means the rent to purchasing price ration must be 2% or better. So a $50K property must generate $1000 in monthly rent, gross. No utilities paid by land lord.

The 7-year rule means the property must net enough income to pay back the money invested in it within 7 years or LESS. Also known as a 14% cap rate.

I've found that one rule feeds into the other. A house with a 2% ratio typically pays back the investment in 7 years, and vise versa.

You can't buy the front steps for $50k in New England.

Sid - Is this correct for the 7yr rule:

The spreadsheet assumes that you know some basic of excel.. Most time, only update the Marked Red cells..

rlm, I live in Mass and own rentals in RI. The 7 year rule probably won't work in most part of Mass.. unless you go after the usual low income cities/towns (Dorchester, Mattapan, Brockton, etc etc)

Didn't take long to find a better deal .... this one is priced nearly the same and is TWO SF houses.

Tryan - I'm a Massachusetts girl, no "live free or die" New Hampshire real estate. A wise man once told me "do what you know" so I know Massachusetts. They say if you make it here, you can make it anywhere.

Elliot - yes ! less headaches. 1960 ranch 7/3/2 1 car gar, HW, new roof, new furnace, city water/sewer, 1/2 acre lot, 1500 sqft, Easy Peazy.

I copied and pasted the excel link but it wouldn't work.

Sid - I'm always amazed/jealous of the low prices you have in your area.

Here are my ROI numbers

$215k price Repairs/closing costs $30k $43k 20% down 30yr 4.5% Rent $1800 taxes $267/mon Insurance $66/mon Mort $871/mon

$1800-1200 (871+267+66)=$600/mon cash flow

600x12=$7,200/yr

$7,200/$73k (cash out of pocket)= 9.8% ROI

add in 1 year of principle pay down $2,785

$7,200+2,785=$9,985/$73k = 13.6% ROI

Still a bad idea? I'm being conservative on the rent about. Could be 1900 -$2,000.