House #26 A Rental House Purchased Outside Our Normal Area

August 2015

House #26 17922 Autumnal Latrines

So the tales of our success had started to spread throughout our community and friends. Up to this point we had completed 25 real estate deals in just under two years. (Here’s the most recent – #25) We talked about real estate a lot with our friends and family because it was exciting for us and frankly because I was addicted and I wanted to share it with everybody.

We would invite anybody and everybody we knew who would listen to start down the path of real estate, but usually, our invites fell on deaf ears. “Too much effort,” or “I’m too busy at work, I don’t have time for this,” were the most often used excuses not to get wealthy with real estate. However, we persisted because it had significantly changed our financial trajectory, and we wanted to share this news.

Finally, a friend named “K” decided he would take the plunge with us. We made a deal that if he funded a yellow letter campaign on his own, we would help finance any deal that he was able to get under contract. We would then decide if he wanted to assign the agreement to us for a finder’s fee or flip it for some cash. He was a “go-getter” so he was perfect for taking the calls from the yellow letters.

(We made sure he mailed letters to some new zip codes that didn’t conflict with our “farm” zip codes in which we were sending letters ourselves.)

After a few mailings, we got a bite on a property. #Winning

The owner of this property was sick of being a landlord, and he wanted out. Bad. We dealt entirely over email with the seller. In fact my business partner wrote draft emails for K to send to the seller to negotiate. We never even talked to him after that initial yellow letter phone call. K and my business partner went to see the house ONCE to make sure it was real. This was a dream deal. It was about 45 mins from our regular “farm” and quite a bit further from our own homes. It was a 1400 sqft house built in 1983 and had three bedrooms, two baths. It was a perfect house for The Stealthy Rich.

We quickly got it under contract for $80,000, and K decided he would “assign” the deal to us for a finder’s fee. We agreed on $5,600 or 7%. This fee means our “all in” so far on this house was $85,600.

Here’s the HUD from this rental house purchase:

As you can see, the owner transferred a 900 dollar rental deposit and a partial rent month as well to us on the HUD.

Rental House Purchase HUD

Time For The Rental House Secret Sauce

The house was already rented and had a long term tenant ready to keep paying us rent every month. They were paying $1,150, which was a little under market rent. This amount put our rent to price ratio at 1,150/85,600 or 1.34 Stellar deal so far, except we haven’t explained our stellar financing yet which is the BEST part. It is what ultimately catapults us into the stratosphere in terms of wealth creation as it allows us to buy houses as fast as we can find them.

Financing For The Stealthy Rich

Now, I’ll explain this financing in detail in a future post, but we had found the last cog to complete our Rental House Money Making Machine – A dream bank for a Realt Estate Investor. It was Repeatable. Sustainable. Robust. AND they were easy to work with. It was a small regional bank from a tiny city outside of Houston. We got their contact from one of our investor friends. They were excited to do business in Houston, and after looking at our Personal Financial Statement and current balance sheet, they were ready to move forward.

The key here is that this bank did not require any seasoning period when borrowing money on a property. In other words, they would loan us 80% to 85% of the appraised value of the property, NOT what we paid for it. THIS WAS AMAZING. This discovery meant our model of buying discounted properties was a match made in heaven with this bank.

So, in this example with house #26 17922 Autumnal Latrines, we paid $80,000. The new bank appraised the home at $118,000. We signed on the dotted line for an 85% LTV (loan to value) with a 20-year amortization at 5.125%.  This financing meant they gave us $100,300  in CASH at closing. (85% of $118,000 = $100,300) Keep in mind; we only paid $80,000 plus the $5,600 to K for finding the deal, so we walked away with roughly $12,000 at closing straight into our pockets. PLUS, we now had a cash flowing asset, with a monthly rent of $1,150 and a loan payment due of $673.03. The only downside to this method is that we have to close the house twice, thus paying title cost two times in a row. In the end, it’s totally worth it, as it works every time. (not like Anchorman 🙂

Rental House Finance HUD (The MoneyMaker)

Here’s the HUD from the loan financing. Remember, It’s not a refinance since we never had a loan on it in the first place. We got a check for $98,220.55 at closing from the bank.

My mind was officially blown. We had completed our first BRRR house. I guess its really a BRRF as we don’t refinance for the last letter. It is just a “finance” Time to find 50 more, just like this house.

Spoiler alert… We do find them. Stay tuned for each one in detail.

2020 Rental House Update

Now we experienced a tragedy with this tenant as well a while back. The daughter came home one day and found their poor mother had passed away unexpectedly. They decided to stay, and now it rents for $1,299. They have been great tenants the whole time. But as it happens sometimes, the tenant lost his job and went dark on us. He wouldn’t answer his phone or respond to texts. Dave went over to his house one day to try and get an answer. Nada. Dave decided to see if he could enter the house. This was a gutsy move. Sure enough, the garage door was open, and goodness the door to the house in the garage was ajar. Dave summoned all his courage and poked his head inside. The place looked deserted. We had avoided a catastrophe. Because right now, during all this COVID-19 stuff, we can’t evict very quickly. The tenant leaving, gave us the window we needed to take back the house.

Here’s what we did to spice the place up.

• New Countertops $1700
• New Tub Surrounds and tubs, new faucets $3,000
• New light fixtures, sockets and switches $2,000
• New LVP floors $3,000
• New Paint throughout – white trim and SW7029 mindful gray $1,800
• Removed an old nasty wet bar in the living room, $250
• $2800 in new HVAC

As soon as we finished, we found a tenant who was a friend of one of our workers, and he rented the place for $1,350. Clockwork. That’s a rent to price ratio of 1.35 (1,350 / 100,000). A solid triple for us.

So to go over the numbers from the beginning, here’s where we stand.

Paid $85,000 initially, refinanced for 100k.  Over five years, we have paid down 16k of principal, then we had this rehab, which cost about 15k, so we are back at 100k, and it will be bulletproof for years to come. We will make about 200 in cash flow each month from this place.

Rental House #26 Rehabbed

Net Worth Update

With our new financing, we are going to try new graphics as well. Let’s see if they work. We’ve made it into the $730,000 club.