So I'm doing research for potentially good investments to include in my portfolio and I found that investing in distressed properties can be a good investment. This is why:
Why? Well, I'll show you an example of a property I hope to purchase.
Price = +$32,000
Rehab = +$4,000
Down Pymt = -$7,200
Total Financed $28,800 @ 4.5% Fixed 30YR Mortgage
It makes sense to include the cost for repairs & rehab at these low interest rates - especially since I'm putting down 20%, which brings my total amount financed under $30K (seems almost as if I'm financing a car doesn't it...? except this is Real Estate!)
Mortgage Pymt = -$182.41
Property Mgmt = -$87.00
Rent Income = +$870.00
Net Income +$600.59/month
The rental income above is estimated based on the area's fair market rent - because my monthly net income is so high, I could lower the rent below the fair market rate if needed and still make a hefty profit after paying the mortgage. I don't have the experience nor the time to manage the property myself, which is why I'd rather leave the maintenance, leasing, tenant background check, etc. up to a reputable property management company that will do all of this for me (for a small fee of course - not included is the one time $250 acquisition fee).
With these types of returns - distressed properties don't look so bad...especially when they are relatively new (this one is built in 2008) and in functioning neighborhoods ( I don't want to be a slumlord!). I'm willing to take on this type of risk because of the cash flow potential and limited downside. If I can't get someone to rent it out - then I'm stuck paying the mortgage. But this is what the property mgmt company is for - they specialize in getting tenants into homes.
Finally, this property will prove to be an even better investment once I include my tax depreciation, interest deduction, and expense write-offs. It's probably better to take this risk versus getting myself locked into another car note and paying a dealership for the next 5 yrs. Just my thoughts.