Author Topic: Rental property #5 under contract  (Read 4961 times)

rachael talcott

  • Bristles
  • ***
  • Posts: 289
  • Age: 46
  • Location: TN
Rental property #5 under contract
« on: November 07, 2015, 12:00:22 PM »
Celebrate with me!  This one will bring my yearly profit on the rentals to $36K.  I've been mostly living off of rental profit and therefore saving most of my salary for the past year, but if I quit or lost my job, I'd have to pay for health insurance, so I think this one will be the point where I'm legitimately FI. 

I'm paying $38K for a bank-owned 3bed/2ba with 2-car carport in a safe neighborhood.  Zillow estimate for resale is $78K, and for rent is $750/mo.  Needs serious cosmetic help, but I can do that myself pretty cheaply.  I thought when I made the offer that it would need both a new roof and HVAC, but the leaks on the ceiling were from the HVAC in the attic, and the inspector said the roof has 3-5 years left on it.  The main reason that I was able to get it so cheap is that there is a nasty pool in the back yard.  I kept getting glimpses of some swimming creatures in the murky brown water.  But I'm already reading about DIY pool removal, and a friend offered to loan me a jackhammer.  I will have to take down part of the fence to get a dumptruck to fill it up, but that looks to be doable. 

So I'm estimating $5-7K for fixing it up.  I'm also estimating 14-15% ROI, not including the increased equity for eventual resale.  I know many people do better deals, but I have a system that I'm comfortable with and it's working for me. 

TomTX

  • Magnum Stache
  • ******
  • Posts: 4123
  • Location: Texas
Re: Rental property #5 under contract
« Reply #1 on: November 07, 2015, 03:59:39 PM »
Congratulations! What part of the country are you in?

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5213
Re: Rental property #5 under contract
« Reply #2 on: November 07, 2015, 04:38:18 PM »
I think you are having too much fun to quit now.  A few more under your belt, then see how you feel.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1142
Re: Rental property #5 under contract
« Reply #3 on: November 07, 2015, 05:02:46 PM »
Congrats. Something like that in my area is 250-300+K

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6924
  • Location: Fayetteville, NC
Re: Rental property #5 under contract
« Reply #4 on: November 07, 2015, 05:10:49 PM »
That's a good deal!  Congrats!

We're on #3 ourselves, and hope to be on #5 by the end of 2016.

Smevans

  • 5 O'Clock Shadow
  • *
  • Posts: 60
  • Age: 33
  • Location: Wisconsin
    • Outdoor Society
Re: Rental property #5 under contract
« Reply #5 on: November 08, 2015, 07:54:51 AM »
Congrats! I hope to be on that level one day.

rachael talcott

  • Bristles
  • ***
  • Posts: 289
  • Age: 46
  • Location: TN
Re: Rental property #5 under contract
« Reply #6 on: November 08, 2015, 08:12:16 AM »
Thanks everyone!

Another Reader, my plan is to buy one a year until I get up to 8 or 9, then go into the process of selling them in order to retire in France.  I mention being FI because it's a big psychological boost just to be FI, even if I don't RE right now.

TomTX, I am in west TN.  It's a pretty good part of the country for rentals.  I think arebelspy has a few in this area, although his strategy is different from mine.

SwordGuy, you're moving faster than I am.

Bearded Man, yes, this is one of the lowest CoL parts of the country.  I don't want to retire here, but it's good to have really low expenses while I'm in saving mode.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 2068
  • Age: 41
  • Location: Pueblo West, CO
Re: Rental property #5 under contract
« Reply #7 on: November 08, 2015, 09:07:24 AM »
That is cool that the leak is from the HVAC. Most people would assume it's from a leaky roof. I was thinking of buying a house with some water on the ceiling. My dad said that house automatically needs a new roof and talked me out of it. Never again.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28267
  • Age: -999
  • Location: Seattle, WA
Re: Rental property #5 under contract
« Reply #8 on: November 08, 2015, 09:23:39 AM »
Congrats!  You're kicking ass!
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

rachael talcott

  • Bristles
  • ***
  • Posts: 289
  • Age: 46
  • Location: TN
Re: Rental property #5 under contract
« Reply #9 on: November 08, 2015, 01:32:14 PM »
Thanks, arebelspy.  Watching your progress has been an inspiration to me.

clarkfan1979, you're right.  I'm amazed how many people will walk away from buying a house just because it needs work.  All houses will eventually need a new roof; it's just a matter of factoring remaining roof life into the value of the property. 

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6924
  • Location: Fayetteville, NC
Re: Rental property #5 under contract
« Reply #10 on: November 08, 2015, 10:41:19 PM »

SwordGuy, you're moving faster than I am.


Can't take full credit for that, my mom's recent passing accelerated my ability to purchase real estate properties above and beyond the 3 we bought this year.   Without that, if we were careful we were going to be able to pick up a 4th towards the end of next year.  Now we'll easily be able to pick up 4 to 6 over the next 3 years, depending upon how quickly they rent.

We'll be able to do more if I can find some owner financing on a few.
« Last Edit: November 10, 2015, 08:02:32 PM by SwordGuy »

marty998

  • Walrus Stache
  • *******
  • Posts: 6956
  • Location: Sydney, Oz
Re: Rental property #5 under contract
« Reply #11 on: November 08, 2015, 11:53:28 PM »
Well done, hope to join you one day with 5 of my own.

rachael talcott

  • Bristles
  • ***
  • Posts: 289
  • Age: 46
  • Location: TN
Re: Rental property #5 under contract
« Reply #12 on: November 09, 2015, 05:43:36 AM »
Quote
Can't take full credit for that, my mom's recent passing accelerated my ability to purchase real estate properties above and beyond the 3 we bought this year.   Without that, if we were careful we were going to be able to pick up a 4th towards the end of next year.  Now we'll easily be able to pick up 4 to 6 over the next 3 years, depending upon how quickly they rent.

We'll be able to do more if I can find some owner financing on a few.

Swordguy,  I'm sorry for your loss. 

I haven't had much luck finding financing where the numbers make sense.  Even local banks don't want to loan $40-50K.  When I started looking for this house, I got a credit card with 0% financing for a year and put all my spending on it for awhile to boost my savings account.  It turns out that this house is cheap enough that I won't need that cushion, but I still have the option of putting repairs on the card in order to keep a bigger buffer in my savings account. 

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 6924
  • Location: Fayetteville, NC
Re: Rental property #5 under contractcts
« Reply #13 on: November 10, 2015, 08:08:28 PM »
I had the same problem finding loans for houses in the $30k to $50 range.

Here's how I found a solution:

I joined my local Real Estate Investor's Association.   Members there were able to point me to locally owned banks that would do loans in that price range.  They would even do them with repair costs included in the loan!

The particular bank I found didn't offer 15 or 30 year loans, which I would have preferred.  Instead, they offered a 5 or 6 year loan, amortized at a 15 year rate, with the balance due at the end of the loan.   One could choose to refinance or pay off in full at that date. 

Those numbers won't work for every deal, but they will work for some of them, particularly if your intent is to buy, fix and resell fairly quickly.  (And you can handle the balloon payment at the end if it doesn't sell.)

I'm also making contacts with private investors who will provide working capital in return for a share of the profits or a higher than usual interest rate.

Haven't made use of those options yet, but I expect to once I get the first 3 rentals bring in money...

rachael talcott

  • Bristles
  • ***
  • Posts: 289
  • Age: 46
  • Location: TN
Re: Rental property #5 under contract
« Reply #14 on: November 11, 2015, 05:40:28 AM »
Quote
The particular bank I found didn't offer 15 or 30 year loans, which I would have preferred.  Instead, they offered a 5 or 6 year loan, amortized at a 15 year rate, with the balance due at the end of the loan.   One could choose to refinance or pay off in full at that date.

Those numbers won't work for every deal, but they will work for some of them, particularly if your intent is to buy, fix and resell fairly quickly.  (And you can handle the balloon payment at the end if it doesn't sell.)

What is the cost (up-front fees and interest rates) that you get from these local banks for a $30-50K loan?

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 2068
  • Age: 41
  • Location: Pueblo West, CO
Re: Rental property #5 under contract
« Reply #15 on: November 18, 2015, 01:00:53 AM »
Thanks, arebelspy.  Watching your progress has been an inspiration to me.

clarkfan1979, you're right.  I'm amazed how many people will walk away from buying a house just because it needs work.  All houses will eventually need a new roof; it's just a matter of factoring remaining roof life into the value of the property.

I agree that many people do not want to do the work on a house. However, a nice niche you discovered was people assuming the type of work that was needed was incorrect.

My brother in law bought houses that smelled really bad. He made some money but then got greedy and over-leveraged himself.

rachael talcott

  • Bristles
  • ***
  • Posts: 289
  • Age: 46
  • Location: TN
Re: Rental property #5 under contract
« Reply #16 on: November 18, 2015, 06:52:12 AM »
Quote
My brother in law bought houses that smelled really bad. He made some money but then got greedy and over-leveraged himself.

Leverage involves risk, although I definitely wonder sometimes if I'm playing it too safe with no leverage at all.  There is a balance in there somewhere