Rental House #36 – Buying a Property From a Wholesaler

8-2016

Read about House #35 to catch up on our story. We found House #36 through a wholesaler. A wholesaler is somebody who gets properties under contract for a living but then “assigns” the contract to somebody else for a fee. The wholesalers have no plan to ever close the property. They are very good at finding deals, and they make money assigning them to others. From time to time, we find a decent deal through them. It all depends on how desperate they are and how good of a deal they got in the first place.

4534 Cecil Desert.   This property has three bedrooms and two baths and was built in 1973. It has almost 1690 square feet. We followed the BRRRR Model on this one, which is Buy, Rehab, Rent, Refinance, Repeat.

Buy (Brrrr)

We dealt with a local wholesaler, one of the bigger ones in Houston. They had the house under contract for $60,000, and they assigned us the contract for a fee of $12,000. That means we paid $72,000 for the property. Here’s the HUD statement from the original purchase.  It was empty. It was a little strange as the two-car garage had been converted to a large game room—more space for the tenants.

Rehab (bRrrr)

We sent our guys over to the house, and it cost us a fat $21,000. We painted, put in new floors, new HVAC, fixed the yard, repaired bathrooms, did counters, windows. This project was our most extensive rehab to date.

Rent (brRrr)

Once we got it rehabbed, we listed on the MLS for rent and listed it for $1,235. This amount meant a rent to price ratio of 1.32 (1,235 / $93,000). That is a standup double.

Rental House #36 Pics

Again this was one where we took our own pics, which are sad, but we haven’t had to rent it since, so we don’t have fancy pictures yet.

Refinance (brrRr)

Now that we have “B”ought, “R”ehabbed, and “R”ented, it was time to “R”efinance and get most of our money back. Remember, we used $72,000 of our own money to buy the property, then another $21,000 to get the house “rent ready.” We called our favorite banker and gave them the address and told them it had a tenant. They did a drive-by appraisal and determined the home was worth $130,000. This valuation means the bank will lend us at least $95,000. This amount covered all of the original cost ($72,000+21,000 rehab) plus some.

The note for this loan was 20 years at 5.125% (same as House #35) with a monthly payment of $603.90

Here’s the HUD statement from our refi. You can see it cost us $1634 to do the refi.  We left about 3k in this deal. This amount was due to the vast amount we had to do in rehab.  We used the loan money to pay off our lines of credit and HELOC. Ready to find the next one!

Repeat (brrrR)

Don’t worry; we’ve done this since house 27; we will continue using BRRRR on house #36 and beyond.

House #36 Net Worth Update

Add another $15,000 in net worth. That’s two houses in August. Killin’ it. Always good when you buy a property at a discount.

2020 House #36 Update

This house now rents for $1,290 , which makes our Rent to Price ratio now 1.4 = 1,299 / 93000. As rents go up, your rent to price ratio should too. We track all our progress through our handy Cash Flow Tracker.

We’ve only made $1,240 cash flow over the years, and our principal paydown has totaled $11,555. We’ve had a bunch of leaks on this one, as well as HVAC problems, plus one major drain treasure hunt. We had to excavate and replace the main drain, as it had “bellied’ meaning it was going uphill and wouldn’t allow waste to drain. However, the house is worth about $147,000, meaning our trapped equity is around $68,555, so it’s not all bad news.