I did not waste any time trying to buy my next property after I had purchased rental property number 2. I always look at the hot sheets (MLS reports that show new listings) at least twice a day, sometimes more to see what is new on the market, back on the market or has had a price change. I also search through the entire MLS periodically to see if there are any good deals I overlooked when checking my hot sheets.
This property was found when I was doing my periodic check for properties I missed. When I do this search I will enter the town or county, a maximum price point like $150k and that is all. I will look through every listing that is active for good deals. I saw this property was priced pretty low at $109,000, but at the time it wasn’t a great deal. I decided to take a look and it needed work, but it was mostly cosmetic. I looked at a few other houses at the same time and I think I made three or four low-ball offers. By low-ball I mean about 20% less than asking price.
I offered $88,000 on this home with seller paying $2,000 in closing costs. The Realtor responded with a counter at $92,000 paying the closing costs! I quickly accepted. It turns out this was an estate sale that the current owners had to pay all the proceeds to the state to take care of nursing home bills. They didn’t care how much they got as long as it was somewhere close to market value. My offer was accepted October of 2011 and we closed in November of 2011.
The home has 5 bedrooms, 3 baths, a one car garage and a covered patio. It had hard wood floors that needed re-finished, needed new paint through out, and carpet in the basement. It also needed some drywall work, appliances, new windows, new doors and other minor repairs. We spent about $14,000 on the repairs and had it ready to rent in January. We asked $1,300 for rent which was a bit optimistic and had no takers for a week or two. We lowered the rent to $1,250 and had a few interested parties and then a family that wanted to sign a two-year lease! We checked references and the home was rented. We did have a few extra expenses on this one. The AC went out in the summer of 2012 and the plumbing system had to be rootered a couple of times.
Here are the numbers.
$92,000 purchase price
$ 18,400 down payment
$ 2,500 closing costs
-$2,000 seller paid closing costs
$2,200 new ac
$250 rooter plumbing
$450 mortgage payment before rented
$33,540 Total cash in
$15,000 rents collected
$5,400 in mortgage payments, insurance and taxes.
This property took more cash than I like to spend on a single home, but as you can see my return was fantastic. I am in the process of refinancing this property now in order to get cash for more rental properties. I estimate the value at approximately $150,000 today. If the home appraised at that value I will be able to take out almost $40,000 and only raise my payment about $170 a month.
This house really helped me get in a position where I can pay off my first rental by the end of the year.
Check out my other rentals and my complete guide to investing in single family homes.