My fifth rental property was purchased for $88,249 in December 2012. This property was a regular sale, bought at a great price and will be a great rental property. I rented the house for $1,200 a month and provides great returns after I repaired the home.
How did I buy rental property number five?
This home came on the market in November of 2012 and the asking price was $84,900. I saw it the same day it came on the market, 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. After I made an offer, the listing agent called me back and said they have multiple offers and needed my highest and best offer. I went over my figures, 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 $88,249. If you are wondering why I picked a strange number like $88,249, I always use odd numbers during highest and best. I figured I was willing to pay $88,000, 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. Here is an article on how to win a multiple offer situation.
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 on rental property number 5
I had an inspection done on this home, since it needed quite a bit of work. I had the roof checked out, which turned out to be 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 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 used a 5/30 year ARM to finance the house at 3.625% interest and we closed 12/14/12.
The numbers on my fifth rental property
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 on my fifth rental property
This home needed more work than I normally like to do, 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 hardwood 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 the work done by our contractor 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
Rent received: -$900
Total cash in: $36,447.18
Rent and cash flow on rental property number 5
$36,000 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). It took so long, because 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.
Update: this home was rented for $1,200.
Total estimated rent received: $14,400
Total payments, tax and ins: $5,696
Maintenance and Vacancies: $1,800
Total cash flow: $6,904
Total return on cash invested: 19.1%
This house took a lot of repairs and a long time to finish and that hurt my bottom line. I estimate it 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!
I figured 5 percent for vacancies and 10 percent for maintenance on this home, for yearly expenses. Even though it is completely rehabbed, it will have some vacancy and maintenance cost over the years. Use my cash flow calculator to see what the cash flow would be on potential rental properties with vacancies and maintenance.
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.
Videos of the home