Rental House #37 – Yellow Letters Open Up a Huge Opportunity
12-2016
Read about House #36 to catch up on our story. We found House #37 through a yellow letter. This is how we find the majority of our properties as it’s the best way, in our opinion, to buy them at a discount and set yourself up for the best chance for financial success.
2415 Deserving Rims Rump – (great code address, right?) This home has three bedrooms and two baths and was built in 1981. It has 1500 square feet. We followed the BRRRR model on this one, which is Buy, Rehab, Rent, Refinance, Repeat.
Buy (Brrrr)
We bought this from a remote landlord. She was hating life! This property had a tenant she was trying to evict, and it wasn’t going so smoothly. Our yellow letter arrived at the most optimal time. She called us and was happy to sell the property. We got it under contract for $89,000. We used our lines of credit to pull the trigger quickly.
Rehab (bRrrr)
This house needed just a little love, and we had a few surprises as well. $10,500 was the total amount to get it “rent” ready. We replaced some carpet, replaced a portion of the air conditioner, the electric panel. Also, we had an issue where the house was not draining. Our trusty plumber ran a camera and found a huge blockage of grease, as well as a “belly” in the pipe. He dug out 15 feet of pipe and put in a chemical solution that dissolved all the grease and hard blockage. After we spruced up the yard and changed a few light fixtures, we were ready to list it for rent.
| Expense Item | Cost |
|---|---|
| Supplies | $21.42 |
| Carpet | $750 |
| LOC Interest | $575.25 |
| Yard | $350 |
| Drain Replace | $2174.42 |
| Carpet | $1075 |
| Make Ready Clean | $145 |
| Fence and Gate Repair | $375 |
| Utilities | $37.66 |
| HVAC | $1600 |
| Make Ready Repairs | $1664 |
| Electric | $1500 |
| Total | $10,267.75 |
Rent (brRrr)
Once we got it rehabbed, we listed on the MLS for rent and listed it for $1,135. This amount meant a rent to price ratio of 1.14 (1,155 / $99,500). That is a solid base hit. Not great, but if you look after the years, In 2020, this place rents for $1,295, so that’s a rent to price ratio of 1.3. If you raise your rents correctly, you should see your rent to price ratio increase over time.
Rental House #37 Pics
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. We paid $89,000 of our own money to buy the property, then another $10,500 to get the house “rent ready.” We called our go-to lender, and they got the process started. 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 most of our original costs ($89,000+10,500 rehab).
The note for this loan was 20 years at 5.125% (same as House #36) with a monthly payment of $637.38 (see a pattern here?)
Here’s the HUD statement from our refi. You can see it cost us $1587 to do the refi. This is the cost of doing BRRR. Totally worth it for us. We paid off our lines of credit and HELOC with the loan proceeds. You will be blown away with how this house helped us get some of our next deals. Stay tuned!
Repeat (brrrR)
We are like the Energizer Battery. We will keep doing this process as long as we can find the deals. Hou se 27; we will continue using BRRRR on house #38 and beyond.
House #37 Net Worth Update
Add another $15,000 in net worth. We’ve bought a ton of properties this year. Buying a property at a discount means instant equity and instant net worth boost!
2020 House #37 Update
This house now rents for $1,295 , which makes our Rent to Price ratio now 1.3 = 1,295 / 99000. 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 $968 cash flow over the years, and our principal paydown has totaled $11,358. We’ve had a bunch of issues in this house as well. New appliances, new siding around the whole house, removed several large trees, and a new tub. However, the house is worth about $150,000, meaning our trapped equity is around $80,000. This is almost the same story as house #36. We are showing all these stories, good and bad, so that you can see reality. Luckily we haven’t lost money on this one, but it hasn’t been super rosy either. We have positive cash flow, which is important as cash flow allows you to stay in the game. Appreciation and principal paydown are what help you win the game. House #38 will break this sad pattern we’ve had on the last two.
