Rental House #39 – The First in a Large Package Deal

01-2017

Read about House #38 to catch up on our story.

This is where it starts to get crazy in our story. We’ve now bought four houses in the last few months, including house #37. The transaction was so smooth that the owner called us back and wanted to sell the rest of her properties to us!  All FIVE of them.

We worked up a contract and bought them all in one fail swoop. This post is about the first of those five.

23214 Blind Vaquero –  This home has four bedrooms and two baths and was built in 1977. It has 1480 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 was so tired of being a landlord. House #37 had a roof that collapsed. This property had a half-burned down house next to it, and the property we were purchasing had all kinds of rodents because of it. Other houses in the purchase portfolio were getting hounded by the HOAs. The owner couldn’t take it anymore! This problem was compounded by the fact that she lived far away in California.

We bought the whole portfolio for $451,600. That’s for five houses. That works out to $90,320 per house in the end; of course, some of them are better than others. We will eventually sell the ones we don’t like.

The only way we could purchase these with “cash” was to max out every line of credit we had and to ask our rich friends to make up the difference. We had to dig deep to take down our biggest deal yet!

Here’s the initial HUD for this massive transaction.

Rehab (bRrrr)

The property was rent ready. In fact, it already had a tenant living in the place paying $1,100 a month. All we did was tell them who the new property manager and where to pay rent.

Rent (brRrr)

Like we said above, we were getting $1,100 a month. This amount meant a rent to price ratio of 1.22 (1,100 / $90,000). That is a base hit. We will take it, especially if we were getting five at once. However, In 2020, this place rents for $1,308, so that’s a rent to price ratio of 1.45. If you can raise your rents, you should see your rent-to-price ratio increase over time.

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, and the house was already rented, so we kinda cheated… (more of a “BR” only.) One call to our favorite lender and she got the process started. They did an in-house appraisal and determined the home was worth $135,000. This valuation means the bank will lend us at least $95,000. This amount covered all of our original costs ($90,000+2000 rehab).

The note for this loan was 20 years at 5.125%, with a monthly payment around $640. As our borrowing costs have gone down, the payment is only $598.

Here’s the HUD statement from our refi. You can see it cost us about $1550 to do the refi. This is the cost of doing BRRR. Totally worth it.  We paid off our lines of credit and HELOC and our friends with the loan proceeds. We also pocketed $2k

Repeat (brrrR)

We have 4 more repeats coming up thanks to House #37.

House #39 Net Worth Update

Add another $20,000 in net worth—way to start 2017 off right. Plus, we updated our house values for 2017, according to Zillow. Wow. The snowball of wealth is really starting to grow. We can’t wait to show you the rest of this package deal we scored.

2020 House #39 Update

This house now rents for $1,308 which makes our Rent to Price ratio now 1.45 = $1,308 / 90,000. This is fantastic because our borrowing costs went down, from 5.125% to 4.25%. We track all our progress through our handy Cash Flow Tracker.

We’ve made $1510 cash flow over 3 years, which isn’t great. We had a major tree and rodent problem and did some HVAC stuff. However, our principal paydown has totaled $8,906. The house is worth about $165,000, meaning our trapped equity is around $75,000.