House #13 29514 Niftiest Bleeder – Finally A Long-term Rental to Maximize Cash Flow!

After the last two deals, we were ready for a keeper, a house we could hold onto and rent for a long time. After all, this was our primary goal: to acquire rental properties, have the tenants pay down the mortgages, make a little cash flow, and benefit from appreciation and favorable tax treatment. Real Estate Nirvana. We couldn’t lose sight of our goal: TO INCREASE NET WORTH as fast as possible.

We had been mailing yellow letters now for about five months and found several properties because of them. However, once in a while, you can get lucky on the good ole’ MLS, and that’s what happened with 29514 Nifiest Bleeder. It needed some work but was priced right, so we made an offer and got it!

Rental House Details

This house was a four-bedroom two-bath house with 1730 sqft. It had a two-car garage and a decent sized yard and was located in a very desirable area of the city. We needed to change out the floors, countertops, and appliances. The yard was in bad shape too. We have “before” pictures on this one! The photographer pulled no punches on the ugliness of this house. Super gross.

Before Pics for Rental House

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As you can see, we had our work cut out for us. We offered 102 and got the 3% back from being a realtor ourselves, so it ended up being about 99k for this house.

Rental House Financing

For the first time, we decided to use “hard” money. A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Investors or companies issue hard money loans. Interest rates are typically higher than conventional commercial or residential property loans, starting at 7.7%, because of the higher risk and shorter duration of the loan. We found a friend who had a lot of cash sitting around no doing much, and he was excited to partner with us to earn a little interest. Maybe we should call it “medium” money because, in the end, we set the terms and interest rate, and it was nowhere near the hard money terms we were used to seeing. We agreed on 10% APR with a minimum of 3 months of paid interest, with ZERO points or fees. This format was very desirable to us. We figured we would need about a month or so to put the house back together and find a renter and then re-finance with our regular bank. However, to make it worth it to our friend, we guaranteed him three months of interest or about $2000. We set up a legitimate promissory note and deed of trust as well to make our lender friend feel comfortable with the deal.  We tapped our Lines of Credit for an additional 30k, which included the other 20k to fund the purchase of the house and 10k in rehab costs. Here’s the HUD for this home.

The Purchase HUD

Rental Rehab

We decided to paint the whole house, put granite in the kitchen, replace the carpet, and replace light fixtures and faucets. Here’s our breakdown below of materials and labor, so you know exactly where we are comin’ from on this deal. Granite for under 800 in the kitchen was a steal!

Rental House After Pics

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Rehab Lessons Learned and Wrap-up

After we finished the rehab, we quickly found a renter and got it rented for $1290 a month. A solid 1.2 on the rent to purchase ratio (after including repairs)

We learned some lessons along the way.

1. We tried to skimp on the rehab by not updating the bathrooms. That was a mistake. We paid for that later as we had a limited tenant pool willing to live in the house with outdated bathrooms.
2. At first, we put in carpet in common areas to save money, another mistake. As you can see from the pictures, we ended up doing tile, and while it cost more initially, we never have to replace it between tenants. (maybe clean the grout for $100.)

Net Worth Update

Ever closer to $400,000!

Read about House 13 or House 15