Investfour More Rental Property Number 6 is Rented

1509I think I mentioned this in another post, but we rented rental property number six over a week ago.   I did not advertise it anywhere or even get the for rent sign up in the yard, before we had a renter!  One of my other tenants, who lives in rental property number four referred her brother to us and his wife loved the house.   I was going to ask $1,300 a month for rental property number six and they were fine with that.  Their references checked out and we signed the lease last week.  I did give them a slight break on the rent for June, since they moved in immediately.  I agreed to charge them only $500 for the rest of June even though half the month was still left.  That made them happy and I(by I, I mean my wife) don’t have to deal with Craigslist calls and showings.

Numbers

Once again I managed to completely blow my budget on this house.  I was thinking it would be a minor rehab and the repairs would be under $10,000, but final contractor bill came in at about $15,000!  I think the contractor got way to caught up in fixing every little detail in the house.  We did add a bedroom, take out a brick bar, replaced the floors, repainted, and all that tends to add up quickly.  The contractor also took a very long time to get everything done, which bugs me more than the extra cost.

I bought the home for $115,000 and the seller paid $2,000 in closing costs.  I don’t know if I mentioned it or not, but this was a Freddie Mac REO property and it had actually been on the market for 54 days before I made my offer.  They started out asking $129,900, then lowered it to $119,900 and I actually did not make an offer until it had been listed at $119,900 for a couple of weeks.  My first offer was a little lower than the final selling price, but of course another offer come in right after I submitted mine.  I offered my max price and luckily the seller accepted it.  I then had to wait 3 months while a title issue was cleared up.  At the time I made my offer late last year, I though I was pushing it on my offer price.  The problem was, I was not seeing many good deals at the time and this one was pretty close to my buying criteria.  Except for rental property number seven, I have not seen any other great deals this year on MLS that I could buy.  There have been some great HUD properties at great prices and a few Bank of America REOs that were priced well, but I can’t buy those properties since I list REOs for those companies.  After repairing the home, I estimate I could sell it for $155,000 no problem and probably closer to $165,000.   If you look at the numbers below I have about $30,000 in equity now on top of my down payment.  I am glad I decided to push it a little on my buying criteria!

Purchase price                $115,000

Closing costs                   $2,000(after seller paid concession)

repairs                               $15,000

Utilities                              $500

Mortgage payments        $1,028(2 months)

Commission                    -$3,450

Cost basis of home    $130,078

Down payment                $23,000

Repairs                              $15,000

closing costs                      $2000

Utilities                              $500

Mortgage payments        $1,028

Commission                    -$3,450

Total cash in                 $38,078

Yearly Rent                       $15,600

Mortgage payment         $6,168

Yearly cash flow              $9,432

I never know exactly how to figure my cash on cash return in the first year, because where does the year start? I paid my down payment back in March when I bought the property, but I didn’t pay the contractor until this month and there were some costs in between those dates.  If I start figuring my returns from when the house is rented I will make 24.7% cash on cash return in my first year.  I don’t figure any repairs into my first year, since I just spend $15,000 fixing every little possible issue.  Remember that return may decrease in the future years when I have to make some maintenance repairs and may have some vacancies.   So far I have been lucky and never had a vacant month in 2.5 years.

I am still looking for more rentals, but not as actively as I had been since we are buying a new personal residence.  I still want to buy two more rental properties before the year is up to stay on track with my goal to purchase 100 rentals.  Rental property number 7 is done, but needs cleaned.  I will try to have a video of it up next week.

Related Articles 

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3 responses to “Investfour More Rental Property Number 6 is Rented

  1. nice 25% ROI

    How long until you refi property ?
    ( months or year )

    • I actually may not refi this one. I think I will refi rental number 5 before I refi this one. I bought it in December and there is much more room in that one for a cash out re-fi. This one has about 68k in equity which would come down to about $29k cash out once I figure 75% loan to value. Number five would have about 80k in equity which would equate to about $42k in cash out. We will see what rates and the market do. Right now I am not seeing many deals and I may not need to refi anything soon. If rates stay where they are now, or drop a little by December(doubtful) I may refi anyway to lock in a low rate for 5 or 7 years and have that cash available when I do see the good deals again. They always seem to come in bunches and I have to remember to be patient.

  2. Pingback: Why it is a Good thing to have Home Owners Insurance | Invest Four More

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