Goal Achieved – Welcome Rental #5

If you missed it, I purchased rental #4 back in March. It’s currently rented but I had a great experience and created a lot of instant equity with a possible flip opportunity. You can find that posting here.

Now let’s welcome rental property #5. My goal for the year was to purchase two more rentals. I just closed on this rental about a week ago. I have been watching the local market and looking for any potential good cash flowing opportunities.

What’s amazing is that I rented the property the day after closing! I literally was looking for tenants during the financing process and scheduled someone the day after closing. They immediately loved the property and handed me a deposit check. I’ve already secured a 1 year lease on the property for my asking price of $1,800 and they want to move in within 10 days. Call it lucky or I picked a good property, either way I’ll take it!

Basically what my goal is with these properties is to get a COC (cash-on-cash) return of at least 10%. This can be difficult to do and has a lot of factors involved but essentially that means if I spend $50,000 to purchase a property, I need to profit 10% or $5,000 on it that year.

A few other criteria I look for are 3+ bedrooms, 2+ baths, good neighborhood (this is key, Location! Location! Location!), single story, brick home, and meets the 1% rule. The 1% rule basically means that the rent should be at least 1% of the purchase price. So if I paid $100,000 for a property, I should be able to rent it for $1,000.

Previously, all of my rental purchases have been for 3 bedroom properties besides the restaurant building turned rental. There’s always a higher demand for starter homes than for larger homes. There’s also more of these homes on the market though. There’s almost no 4+ bedroom houses for lease around here. So I took a gamble and made an offer on a larger home, 4+ bedroom, 2500+ sq ft.

The House: 4/3 + bonus room, 2500 sq ft.

Here are the purchase numbers:

Purchase Price: $170,000

Down Payment – $42,500

Closing Costs – $5,100

Repairs/Maintenance ($500):

Total Cash Costs – $48,100

Rent/month – $1800
Expenses/month – $1,185.89

Cash on Cash return (before m/v) – 15.32%
Cash on Cash Return – 8.58%

Here are the numbers:

Appraised Value: $175,000
Principal Balance: $127,500
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Total Equity: $47,500.00

Monthly Liabilities:
Hazard Insurance: 107.25
P&I: 744.06
Property Taxes: 334.58
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Expenses – $1,185.89
Estimated Vacancy & Maintenance (15%): $270
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Total Expenses – $1455.89
Current Rent: $1800 (Leased until 12/31/19)
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Monthly Profit – $344.11

So I took a gamble with a larger property and it’s paying off so far. It also has a brand new roof, new hot water heater, brand new backyard deck, so if I can keep my maintenance/vacancy costs to 10% or $180/mo I’ll have a COC of 10.8%. I think this is doable and I’m off to a good start with it being instantly leased.

All properties are fully rented! I love the feeling having all properties leased and knowing someone else is paying for the mortgage while i collect checks. So far, being a landlord has been everything I thought it would be. There’s definitely been some maintenance issues but so far I’ve had good tenants which is 90% of the battle. The time/work has been well worth it.

TOTAL Monthly Net Profits on all rentals:

#1 – 302.81 (leased through 06/30/19)
#2 – 221.58 (leased through 11/30/19)
#3 – 510.13 (leased A through 04/3021 & leased B through 02/29/20)
#4 – 238.91 (leased through 05/31/19)
#5 – 348.69 (leased through 12/31/19)
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$1,622.12/month

I keep track of my rental property cash flows on my real estate page here: https://www.allaboutinterest.com/real-estate