I 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.
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)
Mortgage payments $1,028(2 months)
Cost basis of home $130,078
Down payment $23,000
closing costs $2000
Mortgage payments $1,028
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.