Invest Four More Rental Property Number 5

Photo May 06, 10 10 41 AM1

I realized when I uploaded the after rehab video on rental property number five that I had not done a write up on the costs and purchase terms.  Here are the details for Invest Four More’s rental property number five.

Purchase

This home came on the market in November of 2012 and the ask price was $84,900.  I saw it the same day and made an offer of $82,000 with $2,000 in seller paid closing costs.   This home was actually a fair market sale that was purchased in 2009 as a HUD home.  I had not purchased a rental property since early 2012 and I was getting a little anxious to buy another.  The home needed a lot of work, but at $84,900 it was a great deal and may have been under priced by the listing Realtor.   Of course the listing agent called me back and said they have multiple offers and they need my highest and best offer.  I went over my figures and what I thought repairs would cost and tried to make my best offer on the home.  I came in at  $88,249 with no seller paid closing costs and no appraisal.  My portfolio lender does not require an appraisal on purchases under $100,000.

The next day the listing agent called me back and said they had accepted my offer!  I have no idea how much I could have gotten the property for, but I still got a great buy at $88249.  If you are wondering why I picked a strange number like $88,249 there is a reason.  I figured I was willing to pay $88,000, just in case someone else thought it was worth $88,000 as well I add a small amount on top of my max price to make my offer just a little better.

The home is a 4 bed, 2 bath ranch with a finished basement and a 1 car attached garage.  It has a fenced yard, AC and hardwood floors on the main floor.

Closing process

I had an inspection done on this one since it needed quite a bit of work and had the roof checked out.  Luckily the roof was fine and the inspector found no hidden disasters in the house.  I continued with the purchase and got set for closing.

There was a small hiccup that did not affect me in a negative way.  The sellers of the home were buying a new home and they had their contract fall through.  They needed to stay in the house I was buying a little longer than our closing date.  Since I am an investor I was fine letting them lease back the property from me for about 3 weeks.  I was able to get a little extra rent right off the bat, but that also delayed the rehab process.   I did a 5/30 year ARM at 3.625% interest and we closed 12/14/12.

The numbers

Purchase price                                              $88,249

Cash at closing                                              $19,930.64

Loan amount                                                 $70,600

loan payment P&I                                          $321.97

Total payment with taxes and insurance  $474.67

Repairs

This one needed more work than I normally like, but I wanted to buy another property and this was the best deal I had seen in a few months.  We replaced doors, fixtures, counters, carpet, paint, garage door, windows and refinished cabinets and hard wood floors.  We also added a closet in the basement so we could call this a true 4 bedroom house.  It actually has an addition off the master bedroom that can be used as a bedroom, but since the only entrance is through another bedroom it is not a legal bedroom.  The total cost for our contract was about $14,000 not including the flooring.  The flooring is going to be another $3,000 and we had to replace the furnace which was $1,840.

Total numbers after rehab.

Cash at closing                                        $19,930.64

Total repairs                                            $18,140.00

utilities and miscellaneous expenses  $500.00

Mortgage payments                                $1,424.01

Commission                                            -$2647.47

Rent received                                           -$900

Total cash in                                             $36,447.50

Rent and cash flow

Yikes!, that is more than I like to spend on a house but we had some unexpected costs on this one like the furnace and the holding time.  Our contract started work the end of January and did not finish until this week ( May 7th).  The problem was we gave him four houses to work on at once; two flips and two rentals.  I estimated I could rent it for $1,100 when I made the offer, but our rental market continues to improve and I think we can rent it for $1,200 now.  It is hard to calculate cash on cash returns in the first year since I bought the home four months ago, had it rented for a short time, then repaired it. Part of the cash was paid at closing and the rest will be paid out to the contractors when all the work is done.  I will calculate returns from when I first rent it, which some may consider cheating, but it makes the math easier.

Total estimated rent received             $14,400

Total payments tax and ins.               $5,696

Total cash flow                                      $8,704

Total return on cash invested              23.8%

Conclusion

This house took a lot of repairs and a long time to finish and that hurt my bottom line.  I estimate to be worth at least $140,000 after the rehab so I still made out just fine and it will be a great cash flow producer for years to come.  I may refinance it next year to recoup some of my cash investment since I should have plenty of room between my loan value and appraised value.  Of course I will use that cash to buy more rentals!

Videos of the home

Before/during rehab

After rehab

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4 responses to “Invest Four More Rental Property Number 5

  1. Pingback: Purchasing Our First Rental Property, Part 2 | Monday Morning Landlord

  2. this is very comfortable property price and rooms are looking good.

  3. Pingback: Rental Property Number 5 is Rented! | Invest Four More

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