Just Closed on Rental Property Number 6 Today 3/7/13

Details on buying rental property number 6

After waiting 6 weeks for a title issue, I finally closed on this property. The purchase price was $115,000 with $2,000 in closing costs paid by the seller. This property was a REO, and priced a little higher than most of my purchases, but the home is in relatively good shape. Here’s a video of the property. The home is a ranch with a finished basement and about 2000 square feet total.  There are 3 bedrooms and a bath on the main floor, a family room, bedroom and bath in the basement. The home has an attached one car garage and is only a few houses from a large park.

Condition of rental property number 6

The best part about this property is it has an updated kitchen, updated bathrooms and new windows! The only repairs needed are in the basement. There is a storage room that I am going to expand so that I can have 5 bedrooms total. The basement also needs floor coverings and some other minor repairs. Overall this home is in better shape than most of the properties I buy.

Rent estimates on rental property number 6

As far as the numbers go, this home should rent for about $1,200 to $1,250 a month with tenants paying all utilities. With principle, interest, taxes and insurance, my payment will be about $540 a month. I ended up paying $23,000 and some change at closing for down payment and lender/closing fees. I will be getting back $3,450 for my commission on the sale and hope to spend less than $7,000 in repairs. This property should take less than $30,000 total to get repaired and rented. I should cash flow at least $500 a month which would equal over 20 percent ROI in the first year based off cash flow alone.

For a detailed look at my strategy and my other rental properties check out my complete guide to purchasing long-term rental properties.

Update after purchase

Repairs are in progress. There was a giant gun safe that was in the basement, but we don’t know the combo. I am sure it is worth a lot of money, but so far no luck in getting a hold of the old owner who lost the home to foreclosure. After looking at rents, I think my estimate of $1,200 to $1,250 is too low. I think I can get at least $1,300.

Update on this property after 3 years

I have owned this property for 3 years, and it has been a great rental. I had some issues with the first tenant I put in the home because I did not screen them well. You can read about the story and a few other tenant problems here. The home is now rented for $1,400 a month and has increased in value quite a bit. The home is now worth around $195,000 or more, and I am in the process of refinancing it.

It is a little funny looking back on this article and seeing that I thought paying $115,000 for this house was more than I usually paid. I would love to buy 20 houses just like this for $115,000 now. It is tough to find a house like this that needs work for under $180,000. Colorado’s market is one of the hottest in the nation.

Future plans for rentals

I own 16 rentals now, 15 in Colorado and one in Cleveland. I would love to buy more rentals in Colorado, but prices are just too high to cash flow well. I am currently looking to invest out-of-state and Florida is at the top of my list.

How to invest in out-of-state rentals.

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.

Rental Property Number 6 is Rented; Here are the Cash Flow Numbers

purchased my sixth rental property a couple of months ago (March 2013), and I just got it rented!  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) do not have to deal with Craigslist calls and showings. Here is a great article on how to rent a house.

Note: I now use a property manager for my rentals.

The numbers on rental property number 6

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 the final contractor bill came in at about $15,000! I think the contractor got way too 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.

Find a great deal off the MLS

At the time I made my offer late last year, I thought 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)

Repairs:                              $15,000

Utilities:                              $500

Mortgage payments:        $1,028(2 months)

Commission:                    -$3,450

Cost basis of home:    $130,078

Down payment:                $23,000

Repairs:                              $15,000

Closing costs:                      $2000

Utilities:                              $500

Mortgage payments:        $1,028

Commission                    -$3,450

Total cash in                 $38,078

Yearly Rent                       $15,600

Mortgage payment          $6,168

Maintenance and vac.:   $2,340

Yearly cash flow         $7,092

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 18.6 percent 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.

Use my cash flow calculator to see what the cash flow would be on potential rental properties with vacancies and maintenance.

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 to be cleaned. I will try to have a video of it up next week.

Here is a before and after video of the property.

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.