I started this blog over two years after I bought my first rental property. I want to go back in time and revisit each property I bought, what it’s renting for and my current financials for each one. If you are curious what I bought and how much I spent, all my long term rental properties will be listed here.
I had been looking for a rental property for quite some time before I bought my first one. I had wanted to buy a rental for over a year, but had a hard time saving my money and finding the right property. My wife and I had spent most of our money buying our personal house as a foreclosure in 2009 and in 2010 I was really ready to get into the rental game. I refinanced our personal residence and had the money for our first rental in October of 2010.
I saw the target property come up in MLS right away, I made an offer the same day it came up and waited. It was an estate sale, but the home was in great condition and priced well. A couple of days after I made my offer the listing agent called me and said sorry they accepted another offer! I was a bit annoyed because he never told me they had other offers and I specifically asked him to tell me if they received other offers. My original offer was $96,900 and the list price was $98,900 and I would have gone higher had I known there was competition.
I continued to look for possibilities but I was pretty bummed. This house was at least $25,000 below market and needed almost no repairs. It had 3 bedrooms, 2 baths, 2 car garage and no basement. I could easily rent it for at least $1,000 a month and get a great return on my investment. I wasn’t having much luck finding another property when the listing agent called me and said the first offer was cancelling. He said the seller wanted to accept my original offer without putting the house back on the market. I quickly accepted and we were under contract!
At this time I was using a mortgage broker to do my loans. He had done a good job in the past, but this was December 2010 and it was not an easy time to get a loan. I had to jump through a ton of hoops, send in bank statements for the last 6 months, explain deposits over $1,000 for 6 months and send every possible financial document for 6 months. As soon as I thought we had final approval the underwriter would ask for something new. I was getting frustrated and very worries I might lose this deal because we had to extend closing for the lender. Finally, after 6 weeks they were able to sign off on the loan and I closed December of 2010!
My mortgage broker convinced me to do a 75% loan to value because it had a slightly lower interest rate. I could have put only 20% down and in hind site I would take the higher rate for putting less down. I was able to get a 30 year fixed rate mortgage because I did not have four mortgages at this time. My payment is $481 including taxes and insurance. I had my contractors do the minor paint repairs, had the home cleaned and put it up for rent. I asked $1050 and advertised in Craigslist and put a for rent sign up. We had a few calls immediately and up renting it to a nice couple starting in February of 2012.
Part of my deal with the renters was I would put in the yard and sprinkler system in the spring when it go warm. I did that in May and they were very happy with the results. I always make sure all my rentals have sprinkler systems, otherwise the renters will not water the lawn and it will die.
Here is a breakdown of my costs into the house. These are not exact but very close.
$24,225 down payment
$2,500 closing costs
-$2,000 seller credit for closing costs
-$2907 my commission as buyers agent
$500 utilities while vacant
$3,000 repairs the first year
$ 25,468 Total cash into the house the first year.
$11,550 Rent collected through December 2012.
$5,300.79 in mortgage payments, taxes and insurance
$6,249.21 profit in first year.
24.5% cash on cash return in my first year!
These numbers do not factor in the tax savings, appreciation, instant equity that was built-in when I bought the home and equity pay down.
Today the home is rented for $1,100 a month, I have had three different tenants because two of them were transferred out-of-state to new jobs. I was able to raise the rent and collect a releasing fee as well as not have any vacant months during these transitions! I have to admit I have been very lucky. I have spent less than $500 on maintenance in the last two years and this home is worth at least $145,000 today. Since this was my first home I decided to pay all my extra cash flow from my other properties into mortgage pay down on this property. As of 4/5/13 my mortgage balance is $30,000 after beginning with $72,000+!