Rental property number four was listed in November of 2011 and was perfect for my long term rental strategy. It is a 5 bedroom, 3 bath, ranch with a finished basement and a 3 car garage. It has central AC, privacy fence, sprinkler system and a decent yard. The home was listed as a short sale and I made an offer on it the first day it was listed. The asking price was $115,000 which was a great price for this home, but I made an offer of $106,000 with $2,000 in closing costs. I figured I would be the first one to make an offer and I may be able to sneak in and get mine accepted. I was right! The seller accepted my offer and it turns out this was a Veterans Association(VA) loan.
VA has certain guidelines they follow on all short sales. VA determines whether they will accept the short sale based on the appraised value. Even though my offer was accepted by the seller, I had no idea what the appraisal would come in at and if it would be low enough to make the deal work. Once nice thing about VA is they are usually pretty quick at getting the appraisal ordered and the short sale approved. VA will accept offers as long as they net VA a certain percentage within the appraised value. The appraisal came in a few weeks after my offer was accepted and the net was only slightly higher than my offer. I had to raise my price to $109k with $2k in closing costs which was just fine with me. I closed on the home 1/24/2012 with a 5/30 year ARM at 3.75%.
This home was not in bad shape, but it still needed some work. We had to have the property painted, new floor coverings, new appliances, new fixtures and we had to finish off a room in the basement to make a real 5th bedroom. The MLS advertised five bedrooms, but the fifth bedroom had no closet and was not completely sheetrocked. We made the repairs and rented it April 1st for $1,300 a month with tenants paying all utilities.
Here is a look at the numbers.
$109,000 Purchase price
$21,800 down payment
-$2,000 closing costs paid by seller
$2,500 closing costs
-$3,000 commission as buyers agent
$500 utilities while not rented
$600 maintenance over the year(new dishwasher and minor repairs)
$34,400 total cash invested the first year
$550 mortgage payment including taxes and insurance.
$9,000 in cash flow in first year
That equals 26% cash on cash return in the first year. This home is worth at least $150,000 right now and my renters are renewing their lease for another year.
Here are the details on my other rental properties.