I’ve mentioned previously that I made an offer on a third rental property and ran some numbers. I’m closing today on the property and have received the final HUD statement. I’d like to compare the final numbers to my estimates.
Here’s my original estimated numbers (changes in red):
Single-Family Home (built 2002)
3 beds/ 2 bath
1260 sq ft.
Purchase Price: $136,200
Down Payment: $34,050 (25%)
Interest Rate (4.75%/30-year fixed, but I’m still shopping) (I’m getting 4.5% now)
HOA – $0
P&I – $532.86 (517.58, $15.28/mo cheaper)
Property Taxes – $254
Insurance – $68.10 (estimate) ($79.67, $11.57/mo more)
Total $854.96 ($851.25, $3.71/mo cheaper)
Maintenance/Vacancy Costs (15%):
Free Cash Flow:
ROI (includes 3% closing costs plus 15% maintenance/vacancy):
NEW ROI (includes exact closing costs of $2111.14 plus 15% maintenance/vacancy)
I found out there were a few repairs that needed to be made. The seller agreed to give me a $2000 credit towards closing costs. I also received an estimate from a contractor for $1000 to fix these items and there’s a few I can fix. So I should get an extra $1000 when everything is done.
My closing costs are $3111.14, subtracting the $1000 gives me $2111.14 in total closing costs.
My new cash on cash return is: 8.19%.
So these numbers are a little better than expected if I can get at least $1300 for rent. This is mainly due to the seller offering to pay $2k towards repairs and already having a recent survey. The other good thing is that the house is practically move-in ready. It needs one move-out cleaning and a little bit of painting. The previous owner is leaving the washer/dryer plus fridge which are all still in great condition. The seller is also paying for a year of home warranty coverage. Most sellers tend to offer this in this day and age because it’s very likely that at least one appliance will malfunction at some point or another. All I can say is that it’s a good job that real estate professionals can be pointed in the direction of somewhere like First American, who appear to have some of the best home warranty plans out there, so that everyone has the chance to protect their appliances. The home warranty plan averaged at a good price too. The value of this was $475.
I don’t see myself having trouble renting this place quickly. I’m meeting a painter and contractor that will be doing the repairs tomorrow and the work should be finished by Sunday. I plan to list the property on Monday morning. In case any more maintenance works comes up, I could probably check out a local website that caters to my specific requirements.
My plan is still to have half my investments in equities and the other half in real estate. One of my goals this year was to add a third rental which is now done. I will be sure and post more updates as they happen.