Investor costs to buy a rental house: Episode #342
Hello. Welcome to Todd Miller TV. I’ve been asked by a bunch of you to talk about the ROI on investment properties, what some of the costs would be.
So I’m going to take a very simple example, a very conservative example, something that would be applicable right now for the Las Vegas real estate market.
So your entry cost, we’re just going to call that 120,000. We will just say that’s what it takes, total cost all in to go acquire a house. With that you get $1000 a month rent. Remember this is just an example. These numbers could be different depending on the property, et cetera.
So we’re going to estimate taxes. You’re going to have to pay property taxes. You’re going to have to get hazard insurance on the property. You might have an HOA on the property. If you do, it could be as much as 180 bucks, if it’s a condo. For this example, we’re going to say we bought one not in an HOA.
Then management, property management fees. I just threw 100 bucks in and that’s about 10 percent. So that’s going to give you a rough number. So when we take our $1000 a month, we have $720 a month net. Multiply that times twelve, $8640 a year.
So you get $8640 a year, money coming in off of your $120,000. That gives you a 7.2 percent return. So you’re probably wondering, “Well, that’s like not super great. It’s not like ridiculous.” Yeah. But what are you getting in the S&P 500, in your mutual fund or in cash in the bank? Probably a lot less. Like right now if you go buy a CD, you get maybe one percent interest rate on that money, right?
Well here’s the kicker, a couple of things. First of all, you might get more rent. This is a conservative example. We have some investors who paid $60,000 for houses and they’re getting $1000 a month rent. Lot of those houses are gone but somebody got them and there might be an opportunity for them to flip those houses over. Who knows?
So you might get the house cheaper. Getting the rental house cheaper will raise this number. Getting the rent up will raise this number. If you live wherever it is you’re going to buy the house and you do the management yourself – meaning you don’t hire somebody. You just take care of all the management. Then this number is going to go up as well.
Here’s the real big kicker. See we have a 7.2 percent number? Last year, year over year, in Las Vegas the market appreciated 20 percent. So we can just add a two to that. So if you bought last year, you got 27.2 percent return because you got 7.2 percent raw from the rental and 20 percent just because the houses went up in value.
I’m not saying you’re going to get that in the next year. Who knows what’s going to happen in the next year? But I thought I would share some of the numbers and of course this doesn’t take into account that you might have vacancies. You could also have repairs.
Numbers can vary of course but I thought I would share that with you. This way you have sort of a rough idea of what you’re going into when renting a property.
So there are risks to this but there’s a lot of reward to it which is why a lot of people do it and of course it’s backed by something real as opposed with stock, it could be worth nothing. This is backed by a house you could live in or that someone will rent.
So anyway, I thought I would share rental house costs with you. I call this the investor numbers for a real estate investor. That is my update for today and hope to see you on another video. Thanks.