Rental property number 16 is under contract! 2015 has been a great year for rental properties so far even with Colorado having a crazy market. I closed on rental property 15, which is a turn-key rental property last week. I am still waiting for all the paperwork to be finalized before I do a complete write-up on that property. Rental property 16 is not a turn-key, but a local property in Greeley, Colorado. The home came up on the MLS and was such a great deal and I had to buy it, even though I don’t have my bank financing lined up for more rentals yet.
How much was rental property number 16 and how old is it?
Rental property number 16 was listed on the MLS for $91,500 and is a 3 bedroom, 2 bath house with a detached one car garage. In our market this is an awesome price. There are currently 4 houses on the market under $100,000 in Greeley. One of those is a mobile home, one is 348 square feet total and the other two are in horrible shape and in areas I don’t buy rentals. When this house showed up on the MLS at $91,500 I thought it was a mistake, but that was the asking price.
There is one issue with rental property 16 that makes me a little nervous, but when inventory is tight you can’t always buy the perfect house. This house is a two-story that was built in 1885. In the blog I mention I try to buy houses that are newer than 1960, but that is not always possible in a market with few homes for sale. Having a quality Carports Ohio company is a surefire way to prevent inclement weather damage to your vehicle. In the entire city there are 233 houses for sale that are not under contract in any price range. There are over 100,000 people in Greeley, which means there are very few properties for buyers to choose from and it has been this way for years. That is why we have seen prices increase substantially.
Why would I buy a rental property built over 100 years ago?
The thing that really scared me about this house and still concerns me is the age. However, the home is actually in really good condition. The house has newer windows, forced air system, siding, rood, paint, carpet, kitchen and baths. This house might actually be the best condition rental property I have ever purchased. With the home having 3 bedrooms, 2 bathrooms and a garage it should make me a lot of money as well.
One of the best things about the house is it is really small. Because the home is so old the smaller it is the better and it is only 1,100 square feet total. That means if I have any major problems or repairs, they will cost less because it is a small home.
Check out my complete guide to purchasing rental properties for more information on how I find and buy properties.
How much will rental property number 16 rent for and what is it worth?
I think rental property number 16 should rent for $1,100 or maybe even $1,200 a month in our crazy rental market. The only work it needs is a washer and dryer hookup installed and some paint on the garage. If I use my cash flow calculator I get about $400 a month in cash flow after using property management. The best part is my cash on cash return is around 26 percent! The reason my cash on cash return is so high on this property is I am investing less than $20,000 into it, which is much less than I normally invest once I factor in the down payment, repairs and carrying costs.
When I look at the comparable sold properties in the area I think this house is at least 20 percent below market value. Similar houses are selling for $120,000 or more and trying to get anything nice in Greeley for under $150,000 is very tough.
How did I get rental property 16 under contract in such a crazy market?
I think this house was under priced when it came on the market. I made an offer the same day as it was listed and made a very good offer, which I will discuss once the home has been purchased. I made it very easy on the seller to accept my offer and did end up beating out a couple of other offers that were on the home.
How will I finance this rental property?
If you read my article on purchasing rental property number 14, my bank does not want to loan on any more rentals for the time being. They want to see my 2014 tax return and then they have to take my request for more rental properties to their committee, because I have reached a lending threshold with them of 2.5 million dollars. I feel they will lend me more money, but I need to get my taxes done and give them a plan for how many properties I want to buy in the next year. I haven’t told them about my plan to purchase 100 houses yet.
Even though I cannot get financing on the house yet, I do have a line of credit against my personal house I can use to buy the home until I get long-term financing figured out. Even if my portfolio lender will not give me more loans on new rental properties I am working on a couple of different options with other lenders. I hope to write some new articles on these options as soon as get more solid information on them.
After buying this property I hope to be able to put long-term financing on it as soon as possible. I also hope to get financing lined up for purchasing more properties in the near future. My goal for 2015 was to buy 7 rentals and this will be number 4. I am right on my goal, but it will still be tough finding three more great deals for rental properties the rest of the year. I really would like to keep the amount of 100-year-old rentals at a minimum.
Rental Property Number 16 has been Purchased!
Last week I purchased rental property number 16. I bought my first rental property in December of 2010 and I had a goal at that time to purchase 20 or 30 rentals. I thought it would take me at least ten years to buy 20 or 30 rentals and I would have a great passive income source. After a year or two of buying rentals I realized I could buy 20 or 30 properties in ten years if I kept on the same path buying two or three homes a year. I love goals and challenging myself so I knew I had to change my plan. I decided to make my new goal to buy 100 rental properties by the year 2023. This goal would seriously challenge me and make me do thinks differently and better.
According to my plan I should have 24 rental houses by the end of 2015. With 16 rentals owned in September of 2015 it will be really tough to buy 8 more houses before the year is up. However, I am not worried about being behind on my goal because I have until 2023 to make up for it. Even if I don’t reach my goal to buy 100 houses in the time I allowed, I know I will be better off than if I would have kept my small reachable goal.
Is it okay to buy old rental properties?
Rental property number 16 is an old house! It was built in 1885, which is much older than any other rental property I own. I try to stay away from older homes because of the increases maintenance that usually comes with an old house. However, this house was a great deal and I could not pass it up. I knew I had to buy it whether I ended up flipping it or holding it as a rental. The house has 3 bedrooms, 2 bathrooms, a one car garage and about 1,000 square feet.
The home is in great shape and just about ready to rent as soon as I bought it. There is new carpet, new paint, newer kitchen, newer baths, newer roof and the mechanicals are in good shape. The only issues with the home is there is no laundry room and the floors are a little uneven, which is normal in a house this old. We can add a laundry room in the back porch and we should be able to level the floors with some support work in the basement.
Because the home is in such good shape I was not as worried about it being an older house. I also got it for an awesome price and it should make me a lot of money.
How much did I pay for rental property number 16?
I bought rental property number 16 for $91,500. In the past I have bought 1970’s ranches with 4 or 5 bedrooms for under $100,000. However those houses needed about $15,000 in repairs and that was a couple of years ago. Our market has gone crazy here in Colorado and I think I bought this house well below market value. I just looked on the MLS and the cheapest home that I think is comparable to rental property 16 and is actively for sale, is priced at $135,000.
The seller of the home was a real estate agent who has been around for years and he listed the home for $91,500. I thought this was priced really low and they actually received three offers in the first day. When I first wrote my offer I made it for full price with no inspection or financing contingencies. The seller actually called me to make sure I knew I left out an inspection in my offer. He accepted my offer and we closed a few weeks later.
Why was the home priced so low?
At the closing I talked to the seller about the home and the history. He had owned it for almost 20 years and used a local property management company to manage the home for him. I know the company and I have been less than impressed with their work in the past, but I did not say anything to the seller. He told me they had the home rented for $600 a month the last five years, but the property management company thought they may be able to raise that to $700 a month now.
I now knew why it was priced so low! If the actual market rent was $700 than a list price of $90,000 to $100,000 makes sense in our market. However, I know this home will rent for at least $1,000 a month if not a little more. With rents of $1,000 or more a month the home should be worth $130,000 or more. This shows you how important it is to make sure the property management company you are using is doing a good job. I have seen this many times where property managers will under price their properties so they can rent them quickly and choose the best tenants possible. If the landlords are not paying attention to the rental market they may have no idea their properties are being rented for hundreds below current market rents.
What kind of returns will I see with rental property 16?
After using my cash flow calculator my monthly cash flow is only $339 a month (assuming long-term financing is in place). That is well below the $500 a month I shoot for on my properties. I am okay with only $339 a month in cash flow because I am putting so little money into the house and it is such a great deal. Since I am putting a little over $20,000 into the property my cash on cash return is still 20 percent.
Future plans for rental properties
I did not use a 30 year mortgage to finance this property like I have done in the past. I have over 2.5 million dollars in loans with my portfolio lender. My portfolio lender did not want to give me any more loans until I got my 2014 taxes done and they could get approval from their committee for more rental property loans. I think they will give me more loans, but I need my accountant to finish my taxes! I used a line of credit that I have on my personal house to buy rental number 16. When I get long-term financing in place I will put a 30 year mortgage on the property.
I want to keep buying rental properties, but I also want to make sure I am getting great deals with great cash flow. I want to be extra careful in a market like ours where prices are rising very quickly.
I hope to get my financing lined up for more properties in the end of 2015 and 2016. If my lender will not give me anymore loans I have been exploring more options to obtain financing. I could refinance many of my existing properties into one loan with a different lender, which would put me under the 2.5 million threshold my lender has. I have also been exploring some national portfolio lenders who offer financing on rentals, but charge higher rates.
Don’t forget if you are looking for personal help on buying rentals to check out my Complete Blueprint to Successful Real Estate Investing.