Invest Four More Rental Property #4

3126Rental 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

$14,000 repairs

$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.

Rental property #1

Rental property #2

Rental property #3

Rental property #5

Rental property #6

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10 responses to “Invest Four More Rental Property #4

  1. That crib looks great. One good thing about real estate is that it always appreciates.

  2. Thanks for blogging about your real estate investments and sharing with people. Not many people detail their experiences. My question is in regards to the loans on your properties. For example property #4, you closed with a 5/30 ARM. What is your 5 year plan? Do you plan on refinancing after 5 years or possibily selling at that time?

    • Thank you. My five year plan is to have the property paid off. I will have rental property number 1 paid off at the end of this year and then I will start sending cash flow from all my properties into paying offer rental number 4. I already refinanced rental number 2 into a 7 year ARM and I am doing the same with Rental #3.
      I do five year ARMs because the rates are cheap and my portfolio lender does not offer a 30 year fixed, only a 15. I am using the refinance money to buy more properties and soon I should have enough cash flow coming in to pay off a house every two years, then every year, then in a few years if things keep going well I will be able to pay off multiple houses in a year!

  3. I didn’t think you could get 5/30 ARM loans on multiple rental properties because the banks are so tight and paranoid about foreclosures. What’s your secret?

  4. Pingback: Invest Four More Rental Property #3 | Invest Four More

  5. Pingback: Invest Four More Rental Property # 2 | Invest Four More

  6. Pingback: Why Investing in Long-Term Rental Properties is Almost Risk Free | Invest Four More

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