Another good deal

[TexasHusker]

http://gsmaor.paragonrels.com/CollabLink/#/?id=d391ac8e-70f9-48f0-bc16-c893c662eb26

Let's you buy this for $185K

It fetches $32K a year rent.

($2000) repairs and maintenance
($1000) property taxes
($1500) insurance
($4500) utilities
($640) credit card fees

$9600 total expenses per year, netting $22,400.

That's a 12% yield.

And if you depreciate it and you're in the 25% tax bracket, you put another $1300 a year in your pocket. That's almost a 13% yield.

If it appreciates at a modest 2% a year, you're making 15% a year, with just a little work taking reservations!

[bjl584]

Did you put in an offer at $185K?

How are you buying? Financing 80/20?

[TexasHusker]

Did you put in an offer at $185K?

How are you buying? Financing 80/20?

I'm not a buyer right now - too many irons in other fires. I'm guessing a lot of banks would go 80/20 with good credit.

[james.hendrickson]

How'd you determine the rent figures?

[disneysteve]

How'd you determine the rent figures?

If it's already a rental property, I would think that info would be readily available.

[bjl584]

If it's already a rental property, I would think that info would be readily available.

Trailing 12 should be available, but you have to be careful. Sellers will inflate numbers to make their property appear to be a better investment than it actually might be.

[TexasHusker]

Trailing 12 should be available, but you have to be careful. Sellers will inflate numbers to make their property appear to be a better investment than it actually might be.

It's very easy to verify their booking numbers:

Ask for their hotel/motel occupancy returns - these are the returns the homeowner must submit to the county each month, along with taxes collected. In this part of TN, it's 13.5%.

If a homeowner says that a property did $40,000 last year, but they only remitted $2,000 in hotel/motel taxes, you know they are lying.

Also, I like to see a year's worth of returns, but I'm not really interested in buying unless I see 3 years worth.

Finally, a poor return doesn't scare me if the price is right. Back in 2010, I bought a DUMP right next to the Roaring Fork River for $210K. It was only doing around $13,000 per year in rent. It had shag carpet, old worn out appliances, squeaky mattresses, nasty furniture.

I took up the shag carpet, restored the hardwood floor, put nice furniture in there and replaced all of the appliances, and really played up on the historicity of the cabin (it was over 200 years old). Within a year, it was doing over $30,000 per year in rents.

Unfortunately it burned to the ground last November in the infamous Gatlinburg fires. I am currently rebuilding a brand new log cabin.

There are all sorts of reasons a property under-performs. Poor management, out of date, poor marketing. You can make a lot more money in these situations by finding a property that isn't performing and you buy it at a huge discount.