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.

Currently, I buy and rent properties based on the above-mentioned criteria. If the property is furnished, the rent might vary. The tenant can bring in their own furniture and home appliances. This would be because a lot of clients prefer the latter option. Many tenants are also picky about their kitchen, bedding, ventilation, windows, and so on. When a tenant asks for suggestions about where to buy things, giving suggestions might not be a problem. For example, if a tenant wants to know where he/she can find the best mattress, I can ask them to contact local retailers. Else, I could also recommend them to read mattress reviews at Sleep Education or elsewhere, so that they can know the available options. Having said that, for those who require things like these they have the option to rent it too. Contacts for the same could also be provided.

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 are also more of these homes on the market though. There are 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