WHAT’S IN DEMAND – LOW RENT HOMES – OPPORTUNITIES FOR REAL ESTATE INVESTORS
February 13th, 2009 categories: Real Estate Resourcing
Everyone knows that the market is soft right now – BUT where are the opportunities out there? We’ve discovered a high demand market by accident.
A little over a year ago, we bought a home and totally renovated it, thinking that there was a void in the $150K-$175K price range in our town which our investment would fit right into. Unfortunately, the market slowed and that category of buyers was hurt the most … so onto the rental market it went. We started out at $1150 per month and are currently at $950.
What has been interesting to me is the number of calls that we have gotten (and I mean A LOT!) from people who are looking for rentals in the $500-$750 range. Our general rule of thumb is that a tenant must make at least 3 times the rent … So that would require that their wages be at least $1500-$2250 per month. That’s an annual salary of $18,000 to $27,000 per year. Depending on the family size, that’s pretty close to the poverty level.
2008 Poverty Guidelines are $10,400 for a family of 1 person, $14,000 for a family of 2, $17,600 for a family of 3, $21,200 for 4, $24,800 for a family of 5 (SOURCE: Federal Register, Vol. 73, No. 15, January 23, 2008, pp. 3971–3972).
Kindof a sad situation … as many of the people were hard working people … who I would not have a problem renting to if they just made more money. The truth is that everyone needs a home to live in.
So, how does one meet this niche market that is in demand? In my way of thinking:
For a $750 per month rental, an investor who wanted to start out at “break even” would need to have between $83,000-$93,000 total investment in a home. (I divided $750 by a factor of 8 and 9 which covers the range of what monthly Principal, Interest, Taxes & Insurance should cost depending upon whether you are in the city or out, tax rates, mortgage rates, etc. That does not take into consideration the tax benefits of investment property so it’s a safe number to work with).
For a $500 per month rental, the “break even” for total investment would need to be between $55,000-$62,500.
We currently have TWO properties that, in our opinion, meet Investor Criteria:
1. 733 Broadway, Comfort, Texas. Purchase Price: $40,900. This is a 2 bedroom 1 bath home with good “lines” and very much worth renovating. It’s only 2 blocks from High Street. It is in the flood plain and it did flood several years ago. You can see the water lines at about the 3-4″ mark. Suggested repairs, in order of priority are as follows: it needs to be “raised” (it’s pier and beam and very “doable”), the porch is in disrepair and likely needs to be reconstructed, and and the interior (e.g., flooring, kitchen, etc) also needs to be renovated. It’s your call on finish out (varying from minimal for a rental or higher grade to live in). In our opinion, it likely could rent for $600-$700 per month which would allow between $25,000 – $35,000 worth of renovations.
2. 201 Post Oak, Comfort, Texas. Purchase Price: $38,500. This is a one room building with a 1/2 bath. It’s on a slab, has a central heat and air unit, a metal roof and it’s in a neighborhood where the homes sell in the $95K+ range. It’s clean (fresh paint, flooring, vanity, and light fixtures) and it’s very expandable. There is a former closet area that could easily be converted to a small kitchen, the bathroom needs a shower added, and 2 bedrooms could be added easily by just extending the back of the building by about 15′. Basically, you would need to double the space if you want to add bedrooms. For a $600-$650 rental, a person could invest another $25,000 – $35,000 into it. Call for more information. Broker/Owner 210-535-9463.
Rental Investments are a great way of creating monthly cash flow and low priced homes of this nature are very hard to come by. If you have interest, give us a call and we’d love to show you either one of these homes, or both. We encourage you to do your own financial analysis as we do not guarantee that these returns can or will be realized by any one.
We think you’ll be pleasantly surprised though. Don’t miss this opportunity to invest in Comfort, Texas, the “First TRUE Small Town West of San Antonio.”
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