I had a big gap between buying rental property 11 and rental property 12; over six months. I bought number 12 in March 2015 and wasted no time buying number 13 a week later. I just got rental property number 14 under contract this week (March 30 to be exact)! It is another great deal and will be a great rental once it is fixed up.
Our market is still going crazy with low inventory and high prices, so how am I finding properties? I think my ability to find rentals had been more about my focus than about any new techniques. I decided to focus more on rentals in 2015 and less on flips and so far it is paying off.
What kind of house is rental property 14?
Rental property number 14 is a single family house with five bedrooms and two bathrooms. The house has a one car attached garage and is a ranch with a finished basement. The home needs a lot of work including paint, carpet, appliances, drywall work, kitchen work and general yard cleanup.
The house will need about $15,000 in work and it should rent for $1,400, possibly $1,500 a month.
How much did I get rental property number 14 for?
I can’t tell you the contract price of the house until it sells, but it was listed for $129,900. I saw the house come up on the MLS on my hot sheets and I had an appointment set up an hour later. After I viewed the house I had my assistant write an offer right away. We negotiated slightly with the seller and got a contract signed that same day before any other offers came in.
To make my offer more attractive to the seller I removed my inspection contingency and I don’t need an appraisal with my portfolio lender. The seller wanted to sell the house quick and I that works great for me.
What is rental property number 14 worth?
I always buy my houses below market value. There are so many advantages to getting house cheap and my rental properties have increased my wealth significantly. This property needs work and they needed to sell quick and that is why it was priced low. Similar houses in the area are selling for over $160,000 when they are in decent condition. Below are some comparable sales I found int he neighborhood.
- Sold the end of January for $160,000 with 4 bedrooms and 2 baths, with a one car garage.
- Sold middle of March for $166,000 with 4 bedrooms and 2 baths, but has a 2 car garage.
- Sold in October for $178,000 with 4 bedrooms and 2 baths, but has a 2 car garage.
I think this property will be a great rental and it is a bonus that it is below market value.
Here is a great article on how to value a property.
Why should you buy rental properties below market value?
Obviously it is better to buy houses as cheap as you can, but I don’t plan to sell my houses anytime soon. Why is it such an advantage to buy houses for less than they are worth?
- Buying below market value makes my loan to value much lower on houses, which makes my bank happy. I put 20 percent down and after repairs are made my loan will be about 62 percent of the value of the home.
- Buying below market increases my net worth, which makes it easier for me to qualify for new loans.
- Buying below market increases my returns and cash flow. The cheaper I buy a house the more money I can make.
- Buying below market value makes it easier to refinance a property if you ever want to take cash out to buy more properties.
- If you ever get into trouble and have to sell your rentals, it is much easier if you have a lot of equity.
I will give a full write up on this property once it closes with detailed numbers and possible returns. I will also shoot a video of it before and after the repairs are complete. For the future I am still buying rentals and I want to buy at least seven rentals total in 2015. This will be number three and if I can buy a turn-key rental with my IRA I will be up to four and well ahead of my goals!
Rental Property 14 has Been Purchased!
It is halfway through the year and this week I purchased my 14th rental property total and third this year. I am in Northern Colorado and it is getting harder and harder to find great rental properties because our market is going crazy. Colorado has the highest appreciating market in the country and inventory is at all time lows. I have still managed to buy more rentals and they have been great deals. I have definitely had to pay more than I was paying a couple of years ago, but rents have increased as well which has kept the returns similar. Below you can see a video of the property.
Did I get a good deal on rental property number 14?
The rental properties I have bought up to this point have been from $88,000 to $132,000. This is my most expensive property and it needs more work than the house I bought for $132,000. You can see all my rental property numbers on my resources page. I mentioned prices have been crazy in Colorado and that is no different where I am at North of Denver. Our median price in December was $195,000 and in April it was $225,000. That is a huge jump and made me consider not buying anymore properties in the area and possibly selling my current rentals. After analyzing the data I realized I can’t predict the market and I still have a huge advantage when I buy houses since I am an agent and know my market very well. Even if the market does go down, I do not see it dropping much and if it does I will still be cash flowing on my rentals.
I bought this house for $134,000 and it needs about $10,000 in work. Similar houses in the area are selling from $160,000 to $180,000 fully repaired. Even though I paid more for this property than I have my other rentals, the market has been increasing which still makes it a great deal. I think the value is closer to the $180,000 range because it is a five bedroom.
How did I find rental property number 14?
I bought rental property number 14 from the MLS again. All my rentals have been bought from the MLS and it continues to be my greatest source of leads. I have been doing direct marketing to find motivated sellers, but mostly those leads have been turning into listings for my real estate team. The home was listed for $132,000 and I viewed the house and made an offer about an hour after I saw the listing come up for sale. My offer was around $125,000 and the seller countered me at $126,000, which I accepted. Being an agent and making a quick offer was a huge advantage in this situation.
What will the property rent for and what will the cash flow be on this property?
I believe this house should rent for $1,500 a month given it is a five bedroom and our rental market is crazy hot still. I wrote an article about our market a few months ago and if oil prices would affect it. We have a lot of oil and gas drilling in our county and many thought the lower oil prices would cause our housing market to crash. The lower oil prices have done nothing to cool down the housing market and it continues to be hot.
My payment on this house will be about $670 with taxes and insurance included. My interest rate is 4.625 percent on a five year ARM amortized over 30 years. Plugging the rent and loan numbers into my cash flow calculator I come up with $570 a month in cash flow after paying a property manager. These are great cash flowing numbers, but part of the reason they are high is I put more than 20 percent down. My bank requires an appraisal and more fees if my loan amount is more than $100,000. I decided to skip the appraisal and other fees and go with the lower loan amount on this property.
My cash on cash returns are right around 16 percent after accounting for repairs, closing costs and carrying costs while the house is being repaired.
Future plans for rental properties
I still have a long way to go until I reach 100 properties. I am running into some roadblocks that I knew I would hit and changing plans accordingly. The biggest hurdle is my bank won’t give me any more loans until I get my 2014 taxes done and they get approval for more loans. I think once I get my taxes done we can work something out where they will give me more loans. If they stop lending to me altogether I have a few alternative plans I am working on that I will be writing about soon.