I did not waste any time trying to buy my third rental property after I had purchased rental property number 2. I always look at the hot sheets (MLS reports that show new listings) at least twice a day to see what is new on the market, back on the market or has had a price change. I also search through the entire MLS periodically to see if there are any good deals I overlooked when checking my hot sheets. Rental property number three was a property I had overlooked on my hot sheets, but that I found when searching all the MLS listings.
For more information on my rental property strategy, check out my complete guide to investing in long-term rentals.
How I found my third rental property on the MLS
Rental property number three was found when I was doing my periodic check through the entire MLS. At least every week, I will search all the active listings in my county for homes under $150,000. I saw this property was priced pretty low at $109,000, but at the time it wasn’t a great deal (I would love to buy 10 houses at $109,900 now like this one). I took a look at the property and it needed work, but the work was mostly cosmetic. I looked at a few other houses at the same time and I made three or four low offers that day. By low I mean about 20% less than asking price.
My offer on rental property number three
I offered $88,000 on this home and asked the seller to pay $2,000 in closing costs. The listing agent on this property responded with a counter at $92,000 with the seller paying the closing costs and I quickly accepted. It turns out this was an estate sale, and the current owners had to pay all the proceeds to the state to take care of nursing home bills. They didn’t care how much they got as long as it was somewhere close to market value. My offer was accepted October of 2011 and we closed in November of 2011.
The details on rental property number three
The home has 5 bedrooms, 3 baths, a one car garage and a covered patio. It had hardwood floors that needed re-finishing, needed new paint throughout and carpet in the basement. It also needed some drywall work, appliances, new windows, new doors and other minor repairs. I spent about $14,000 on the repairs and had it ready to rent in January of 2012. I asked $1,300 for rent which was a bit optimistic and had no takers for a week or two. I lowered the rent to $1,250, had a few interested parties and then a family that wanted to sign a two-year lease! We checked references and the home was rented. I did have a few extra expenses on this one in the first year. The AC went out in the summer of 2012, and the plumbing system had to be rootered a couple of times.
The numbers on rental property number three
Here are the numbers:
$92,000 Purchase Price
$ 18,400 Down Payment
$ 2,500 Closing Costs
-$2,000 Seller Paid Closing Costs
$2,200 New AC
$250 Rooter Plumbing
$450 Mortgage Payment before rented
$33,540 Total cash in
$15,000 Rents Collected
$5,400 in Mortgage Payments, Insurance and Taxes.
The gross income was $9,600 the first year, but with expenses the net income was closer to $6,500.
Refinancing rental property number three
This property took more cash than I like to spend on a single home, but as you can see my return was fantastic. I am in the process of refinancing this property to get cash for more rental properties in 2013. I estimate the value at approximately $160,000 today.
Update: The house ended up appraising for $142,000, which was a horrible value, but I was still able to take cash out of it in order to buy more properties.
Rental property number three was a great deal at $92,000. Sometimes it pays to make low offers on homes although I have made many low offers that were never accepted or even responded to.
This home is rented for $1,300 a month and has not needed any maintenance or had a vacant month since bought it!
Check out my other rentals
Rental Property #5 (I have since sold this one)
For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.