A bit off topic but still hard asset
Weiss
Posts: 9,941 ✭✭✭✭✭
That I thought was interesting from a completely academic standpoint and food for thought if you're optimistic about the general economy and wondering how to convert some gold profits.
I'd like to take credit for the way it turned out--truth is even I didn't realize how well this one would work...
For about a year I've been looking for a place close to one of my other properties that I could eventually use for parking or as leverage for parking--if I find something better I'd sell it and buy the better place. First and second choices were a no-go, so I searched the neighborhood aerial tax map online and found the third choice. Delved into the tax records, found the name and address of the owners...and cold called them: Hi, I'm Weiss. Would you sell me your house?
After the shock wore off, they actually agreed. They too are landlords. They bought the place 5 years ago and they'd demo'd the first floor, installed a new 200 amp service, new water heater, AC and 95% furnace. But they bought on a short term 15% signature note and couldn't ever scrape up the money to finish the job. So they were about to go underwater. I was a life-saver to them. I was hoping they wanted no more than $95k. They offered it to me at $60k. I tried to get them down a little but they held firm at that price. We agreed three weeks ago. Paperwork took two weeks and we closed on Thursday of last week.
2-story 1650 sq ft. 4-bedroom, 1.5 bath house. 2-car garage. Vinyl sided, mostly gutted on the inside. Normally on rental property you need about 20% down (you can borrow 80% of the value). But because it's gutted, my bank saw it as new construction/rehab and offered me 80% of the improved value, or after the rehab. Wednesday of last week we got the improved appraisal: $110,000. With a purchase price of $60,000, that meant the bank agreed to loan me almost $30,000 to do the upgrades and I had to put zero dollars down. All the extra $$ comes to me at 5% interest, the interest is a tax deduction as are all of the improvements (added to basis, yadda, your mileage may vary).
I'd gotten a key from the owners to do the various inspections and appraisals the week before close. Since it was gutted he told me to have at it. I listed the property on my website and on craigslist, sent an email to all of my current tenants and offered them a bonus if they helped get the place rented. The morning of the close (Thursday) I had four showings of the place with potential renters (remember I didn't even own the place yet!). Rented it to the second group of people last Saturday and since then two of the other groups have emailed to ask if they could rent it.
Got their security deposit and first months rent to add to the pile of $$, and though the rent is below market to persuade them to rent a gutted house, it's still enough to cover the taxes, insurance, and the mortgage at the $60,000 plus the $30,000 extra with a few hundred dollars positive cash flow every month. And next year the flow will be considerably higher as we raise rent to closer to the typical going rate.
Our budget for the rehab is $20,000 and I'm confident we can get really close to that--maybe even below it. That's completing the demo, hauling, finish the electric, new plumbing (including expanding to 2 full baths), new appliances, cabinets, counters, flooring and trim.
So I'll have a virtually new rental property, fully leased through August of 2013 with a wait list for 13-14, with positive cash flow set to increase, for zero out of pocket.
I'd like to take credit for the way it turned out--truth is even I didn't realize how well this one would work...
For about a year I've been looking for a place close to one of my other properties that I could eventually use for parking or as leverage for parking--if I find something better I'd sell it and buy the better place. First and second choices were a no-go, so I searched the neighborhood aerial tax map online and found the third choice. Delved into the tax records, found the name and address of the owners...and cold called them: Hi, I'm Weiss. Would you sell me your house?
After the shock wore off, they actually agreed. They too are landlords. They bought the place 5 years ago and they'd demo'd the first floor, installed a new 200 amp service, new water heater, AC and 95% furnace. But they bought on a short term 15% signature note and couldn't ever scrape up the money to finish the job. So they were about to go underwater. I was a life-saver to them. I was hoping they wanted no more than $95k. They offered it to me at $60k. I tried to get them down a little but they held firm at that price. We agreed three weeks ago. Paperwork took two weeks and we closed on Thursday of last week.
2-story 1650 sq ft. 4-bedroom, 1.5 bath house. 2-car garage. Vinyl sided, mostly gutted on the inside. Normally on rental property you need about 20% down (you can borrow 80% of the value). But because it's gutted, my bank saw it as new construction/rehab and offered me 80% of the improved value, or after the rehab. Wednesday of last week we got the improved appraisal: $110,000. With a purchase price of $60,000, that meant the bank agreed to loan me almost $30,000 to do the upgrades and I had to put zero dollars down. All the extra $$ comes to me at 5% interest, the interest is a tax deduction as are all of the improvements (added to basis, yadda, your mileage may vary).
I'd gotten a key from the owners to do the various inspections and appraisals the week before close. Since it was gutted he told me to have at it. I listed the property on my website and on craigslist, sent an email to all of my current tenants and offered them a bonus if they helped get the place rented. The morning of the close (Thursday) I had four showings of the place with potential renters (remember I didn't even own the place yet!). Rented it to the second group of people last Saturday and since then two of the other groups have emailed to ask if they could rent it.
Got their security deposit and first months rent to add to the pile of $$, and though the rent is below market to persuade them to rent a gutted house, it's still enough to cover the taxes, insurance, and the mortgage at the $60,000 plus the $30,000 extra with a few hundred dollars positive cash flow every month. And next year the flow will be considerably higher as we raise rent to closer to the typical going rate.
Our budget for the rehab is $20,000 and I'm confident we can get really close to that--maybe even below it. That's completing the demo, hauling, finish the electric, new plumbing (including expanding to 2 full baths), new appliances, cabinets, counters, flooring and trim.
So I'll have a virtually new rental property, fully leased through August of 2013 with a wait list for 13-14, with positive cash flow set to increase, for zero out of pocket.
We are like children who look at print and see a serpent in the last letter but one, and a sword in the last.
--Severian the Lame
--Severian the Lame
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Comments
The only thing I don't like is the debt that comes with it. For all your work and the risk you've taken on, you're clearing a couple hundred a month. Your "silent partner" the bank is making most of the money every month.
Of course, you get to keep whatever price appreciation occurs. And hopefully the rents will increase enough to make it more profitable and pay down the mortgage.
I like reading stories like this, thanks for sharing Weiss and thanks for the details. It gives me hope to one day do the same and have some steady income like a good many folks I know around my town do.
My dad and I have one rental together on which we're just about breaking even on due to horrible scum tenants and catching the market at the wrong time that we bought. But that's turning around now.
My dad has 1 rental property that has been rented every month since day 1 he bought it about 6 years ago. Albeit the rent is only $550, it's good income on something that didn't cost but $35K. Lots better than a CD at your favorite local ending institution.
I see most rental properties around here in the $45-$75K range do really really good as income producers in the long run. There are lots of properties for sale around here that will do very very well in the next 20-30 years as income producers for folks that have the cash buy a few. Me? Nope, just got out of a losing business venture and trying to get back on my feet.
Too many positive BST transactions with too many members to list.
HH
1947-P & D; 1948-D; 1949-P & S; 1950-D & S; and 1952-S.
Any help locating any of these OBW rolls would be gratefully appreciated!
A few questions if u would like to share?
Was the loan a commercial loan? What interest rate?
If u had 20% down, to increase cash flow would u reconsider that option? Or is it better to keep your cash and fully finance?
Students come with their own set of issues. But believe me: they have money and they pay their rent on time. These students are architecture majors. In fact the property is 3.5 blocks from a massive engineering campus. As with my other property in the area, I've added a few features designed to attract engineers and science majors (like two cat6 ethernet jacks in each room).
It's a 20 year note, 5 year balloon @ 5%. Because the place is cash-flowing with no money down, it didn't make sense to me to put cash into it.
--Severian the Lame
I feel the topic is rightful here, regardless of what the sticky says
good to know deals are out there.
Steve
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>The U Haul store next door makes it a renter's dream come true. Good job. >>
Ironically, the U-Haul place had a bit to do with me buying this place.
Like I said, this whole thing began as an effort to find parking. I'd approached the U-Haul manager several months back to ask if I could lease a few of their parking spaces. They have 3/4 of the block and *appear* to have plenty of spaces available.
The manager said they don't do that.
My response was something along the lines of: Wait. You don't lease things? Your entire business model, your entire reason for existing is to lease things.
They even have a large bank of smaller (big closet) sized storage units inside their facility. How much difference is there between renting a storage space and renting a parking space?!
Take out the lease agreement, scribble "parking space A" over "storage unit A", and we're good.
But whatever. The seller of the house we bought told me the day of the close that U-Haul was upset when they (the seller) purchased the house several years ago, because U-Haul apparently wanted it.
They may still.
--Severian the Lame
<< <i>it's a university town where the vast number of students come from just far away that commuting isn't an option. >>
university town + rental property = $$$$$