Watching for the right single family home to buy can take a lot of time and effort. The following is the math that I use to analyze a single family home quickly and decide if it’s even worth looking into.
- I only look for single-family homes in areas that I’m financially comfortable with. I need to be comfortable with the average sale prices, rental rates, days on market, etc of a given area. Never invest where you don’t know the market or have a reputable property management firm such as the Pyramis Company in San Antonio, Texas, to help guide the way.
- Determine how much it is going to cost to rehab.
- Normally I use $8,000 for a small paint and carpet replacement.
- $15,000 for a medium size job.
- $20,000 to $40,000 for a major rehab. To include complete paint, carpet, roof, HVAC and appliances.
- I look at the purchase price and add the repairs. So, if I found a house for $125,000, and it needed $5,000 in repairs, I use the number $130,000.
- I then take that final number and knock off two “zeros”. This gives me a good estimate of my monthly mortgage payment with taxes and insurance. So $130,000 becomes $1,300 per month. I know this sounds high, but I like to be conservative.
- I add a few hundred for vacancies, repairs, etc. So I might say this property is going to cost me on average $1,500 per month.
- I just need to know what the average rent will be. If the average rent, on the low side, will give me positive cash flow, this is probably worth looking into. If not, I pass on it.
I believe any property needs to have both positive cash flow and good equity.