The Anatomy Of A Rental Property

January 17, 2013 16:00

If you have the ability to buy rental property, you might want to consider a few things.  Prices have dropped dramatically and we may be testing the bottom of the real estate prices. Interest rates are close to 50 year lows. Rents are going up and vacancies are going down.  People who have been pushed out of the ownership market have moved into the rental market.

Here is an example of one of my listings that I think would make a good rental:  18121 SE Lincoln St., Portland, OR.  You might also consider a Portland Duplex or multi-family property.

Purchase Details:

List Price:         $135,000
Closing Costs:        2,000
Down Payment:    33,750
Loan Amount:     101,250

Monthly Expenses:

Mortgage Payment: $513
Taxes:                      171
Insurance                   50
Utilities                     100
Maintenance               50
Vacancy Factor          30
Total Monthly Expenses:   $914

Monthly Gross Income: $1,000

Net Monthly Income       $86

We assume a 4.5% interest rate on a 30 year fixed mortgage in this example.

The numbers that we have used for the rental are $100 less than the average rental amount on Rentometer.com, so we are taking a very conservative approach in this study.

Estimated sale price at the end of 10 years: $165,392.  This is about 2% appreciation per year, and once again, this is a very conservative number.

We also assume a 2% increase in rents per year and a 2% increase in expenses per year.

The Internal Rate Of Return on this investment at a 5.3% cap rate (the current cap rate of this property) would be 10.92%.

IRR=10.92%

If you are more bullish on the starting rental amount, the rental increases or the appreciation, the IRR could easily top 15%.

If you would like for me to send you the details of this investment opportunity, please let me know.  Where can you make over a 10% return on your investment these days?

Call Brian 503-810-2219