House #19 Finally a Good “Buy and Hold” Rental

3-6-2015

House #19 2014 Chou Dow Route – A long-term hold

We grabbed house #19 off yellow letters yet again. I know it sounds really mundane how we source these deals, but we are creating a cash flow snowball, and it’s starting to gain some serious momentum.

2014 Chou Dow Route was a unique house for us as it was only a 1/4 mile from one of our residences, literally hitting close to home on this one! This property was a bread and butter rental. Three-bedroom, two-bath house with 1,725 sqft. It was on a quiet street and had a great layout. Perfect rental!

Pics of This Brand New Rental House, Money Making Factory

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Financing This Rental House

We got this house under contract for $118,000. It needed a little love, so “all in,” we were at about $135,000 after repairs. We borrowed $115,000 from a friend who was almost like hard money, but not quite as “hard,” as we paid no points and paid a 10% APR with a guarantee of 3 months of interest even if we pay it back before the three months.

We closed on the property and did the necessary repairs, which totaled about $15,000. We added new carpet, laminate, countertops, backsplash, landscaping, new electric panel/outlets, roof repair, and serviced the HVAC. We then rented the property for $1,490. Next, we found a way to get our friend his money back and us out of paying 10% interest by getting a traditional 20-year loan from one of our small local banks. This bank would also let us roll the cost of our rehab into the loan, which helped us come out of pocket less to get the house rent ready.

This creative financing made our loan amount, $108,000. (Total cost of house was 120k which is what we paid for it+15k in repairs = $135,000. 135,000 x 80% = $108,000)

We then used that $108,000 + 7k of our own money to pay back our friend’s loan of $115,000.

$1,490 rent yields a rent to price ratio of 1490/135,000 = 1.1. It’s not our best deal looking at this ratio, but this house is in a better area than others in the portfolio. Hopefully, it will appreciate much more, and the tenant longevity will be better.

Here’s a breakdown of some of the expenses.

Lessons Learned

This property was the most expensive house we had bought thus far. This experience was nerve-racking to us, as we weren’t sure if the “pricey” rehab and the higher valued house would be worth it. This house also had a higher property tax than our other “factories.” We learned how to buy a house with “quick” money and then transition it smoothly within a few months to a more stable long-term financing option for minimal cost and maximum flexibility. Or long-term option also allowed us to finance our rehab. There still had to be a better way to grow faster and achieve our goals at the pace we wanted. Stay tuned for house #20.

Read about House #18

Net Worth Update

This house was our first deal of 2015! Let’s see where we ended up.