Rental House #38 – The “Water” Rental

12-2016

Read about House #37 to catch up on our story.

I know it’s been a while since we last posted. We had a crazy Q4 2020 as we purchased over 200 doors in two apartment complexes… We will document that eventually, but today we are going to focus on house #38.

House #38 came to us through a wholesaler. He’s a guy who does what we do and tries to buy properties off-market, but they flip them to other investors before they actually close the property, and they are paid an assignment fee/commission for finding the deal. We compete with these guys for our own yellow letter deals, but we can pay more than the wholesaler since we have one less mouth to feed in the transaction.

6526 Defiant Gaveller –  This home has three bedrooms and two baths and was built in 1978. It has 1400 square feet. We followed the BRRRR model on this one, which is Buy, Rehab, Rent, Refinance, Repeat.

Buy (Brrrr)

We bought this from an owner who loved his house; seriously, he took such good care of it. In fact, when I went to look at it with the wholesaler, the owner was removing the “sprinkler” from his roof. Let me explain. The dude was so worried about sun/heat damage to his composite shingle roof that he had mounted a basic garden sprinkler (like in this picture) to a 2×4 and then set that piece of wood high on his roof. He had the whole thing connected to a water hose and everything. He said when it got sweltering hot in the summer; he would crank up the sprinkler to help keep his roof cool. Crazytown. Let it be known we’ve never watered our personal or rental roofs in all our days.

We got this house under contract for 90,000. The wholesaler only paid 75k, so we pay him 15k as an assignment fee. However, at $90,000, this house is still a screaming deal. It will rent for 1250 which is a rent-to-price ratio of $1200 / $90,000 = 1.33

We used our lines of credit to pull the trigger quickly and get this asset purchased.

Rehab (bRrrr)

This house needed almost no love at first; keyword, “at first’, We painted the whole house to get it into our SW 7016 “Mindful Gray” paint scheme ($1,250), changed the locks, and mowed the lawn. We then listed it for rent for $1,199 a month. No sooner had we done this, a realtor called us and told us there was a major leak in the ceiling and pipes had burst and caused the ceiling to collapse. Dang. The water gods were ticked we had stopped watering the roof, apparently.

It’s something real that when properties change hands, things break. HVACs, water heaters, doors, just the way people live in houses causes them to do weird things. In this case, the galvanized pipes from 1978 had begun to fail as they rust from the inside out, and it sprung a leak. Luckily it was over a tub, so the floor damage was minimal. We patched the pipe with some plastic pex, fixed the ceiling, and got the listings flowing again.

Rent (brRrr)

After a week, we got it rented for $1,199. This amount meant a rent to price ratio of 1.3 (1,199 / $92,000). That is a solid double for us. In 2020, this place rents for $1,299, so that’s a rent to price ratio of 1.42. If you raise your rents correctly, you should see your rent to price ratio increase over time.

Rental House #38 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 $90,000 of our own money to buy the property, then another $2000 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 $135,000. This valuation means the bank will lend us at least $95,000. This amount covered most of our original costs ($90,000+$2,000 rehab).

The note for this loan was 20 years at 5.125% (same as House #37) with a monthly payment of $637.38 (see more of a pattern here?)

Here’s the HUD statement from our refi. You can see it cost us $1362 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.

Repeat (brrrR)

We will keep doing this process as long as we can find the deals. We love BRRRR so much, look for us to use it on house #39 and beyond.

House #38 Net Worth Update

Add another $15,000 in net worth—way to start 2017 off right. Buying a property at a discount means instant equity and an instant net worth boost!

2020 House #38 Update

This house now rents for $1,310 , which makes our Rent to Price ratio now 1.42 = 1,310 / 92,000. As rents go up, your rent to price ratio should too. We track all our progress through our handy Cash Flow Tracker.

We’ve made $4214 cash flow over 3 years, and our principal paydown has totaled $12,479. The house is worth about $150,000, meaning our trapped equity is around $65000. This is almost the same story as house #37.

Somehow we also got our banker to lower all of our rates on our loans from 5.125% to 4.25%. This will save us over 2,250 a month in interest expense. Never hurts to ask!

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 is killing it for us! (even if we don’t water the roof.)