House #10 – 29006 Northeast Teeters -Another Rental House from Yellow Letters
New to our story? check out House #9
April 2014
Hard to imagine this was our tenth deal. In one year we have bought over ten houses keeping 8 of them. Looking back, we can confidently say that holding real estate is our best chance at achieving real wealth and reaching our goal of FIRE.
Acquisition
We were mailing about four to five hundred yellow letters each month. Each mailing, we would receive a few calls and usually buy one deal as a result. 29006 Northeast Teeters was one of those calls. The owner was a tired landlord who was happy to sell to us. The house already had a renter in it, and there was a significant amount of deferred maintenance, but it was in a great neighborhood, and we were hungry for a deal, so we agreed on $95,000 as a purchase price with $2,500 back at closing, so it came out to $92,500. The house had a retail value of $115,000 per our analysis. The renter was paying $1,100 a month as well.
Financing
For this one, we used our fancy interest-only financing through Merrill Lynch, and we took out a loan for $66,500, which meant we had to pony up a 30% down payment or $27,000. Remember, our Interest-only loans were tied to LIBOR and were super-low monthly adjustable rates, of about 2.0%. Plus, it was interest-only, so no principal pay-down meant it was a small monthly payment for ten years. That’s a ton of cheddar to put down, but it meant our monthly payment was only $96.98. That made it all worth it!
Let’s Do The Numbers
Here’s the HUD from our closing.
| Line Item Detail | Amount | Comment |
|---|---|---|
| Purchase Price | $95,000 | Higher than previous houses, but in a better neighborhood |
| Down payment 30% used Merrill Lynch IO product | $27,000 | 30% down on a Interest Only Loan |
| Closing costs which included first year of insurance | $1638 | Closing cost - we got 2,500 back from seller as credit as well |
| Total cost of deal | $96,638 | Includes rehab |
| Anticipated Rent | $1,100 | |
| Monthly Mortgage | $99 | Interest only loan tracked at LIBOR. #Winning |
| Anticipated monthly Expense | $200 | Average of $2400 a year in expenses |
| Monthly property taxes and insurance | $250 | |
| Monthly cash flow | $551 | Delicious |
| Rent to Purchase price Ratio | 1.16% | This is only a base hit but we couldn't pass one up in this neighborhood and it was already rented so that makes things easy. Also we plan to raise rent. |
Net Worth Update
This update is exciting as I’ve crossed the 300k mark since the last update. With this deal, it felt like we were starting to get the hang of this and were able to add assets easily as long as we were able to find excellent deals.
I had no idea interest-only loans were a thing. Thanks for the eye opener. Great deal!!