Rental House #34 A House Found Through Direct Mail that Continues to Perform

7-2016

We had just finished House #33 when this property fell into our lap. Again the house came through yellow letters. We will keep beating that drum until it breaks. The reason we keep telling this story over and over again is to show that small, consistent steps make the journey.  This property has three bedrooms and two baths and was built in 1974 (An oldie by TSR’s standards). It has almost 1600 square feet and is in one of our best-performing neighborhoods, which has excellent schools and close to all the action, which makes it a great rental. We followed the BRRRR Model on this one, which is Buy, Rehab, Rent, Refinance, Repeat.

Buy (Brrrr)

We negotiated with the owner and came to an agreement for $83,600 ($85,000 with $1,400 seller’s credit). This was a great deal. You can view the below HUD statement from closing to see every fee associated with buying this property. Since we purchased the property in July, the owner paid half the taxes because they owned the place for half the year. Hence we received a $1,815 credit making all we had to bring to closing after fees, $82,155. We used our line of credit and HELOC to buy this property outright. This means we brought a check for 82,155 to closing.

Rehab (bRrrr)

We sent our guys over to the house, and it cost about $15k, including all the holding costs such as interest on our short term money. We painted, put in a new floor, new HVAC, spruced up the yard, and a few other things.

Here are our exact costs for our rehab.

Rent (brRrr)

Once we got it rehabbed, we listed on the MLS (we are agents) and listed it for $1,245. This amount meant a rent to price ratio of 1.27 (1,245 / $98,000), which is pretty good. That is a solid double in baseball terms.

Refinance (brrRr)

Now that we have bought rehabbed and rented, it was time to refinance and get all out our money back out. Remember, we used 85,000 of our own money to buy the place, then another $15,000 to make the house shine. We called our favorite small regional bank and gave them the address and told them it was rented. They did a drive-by appraisal and determined the home was worth $135,000. Payday. This valuation means the bank will lend us 80% of that. We decided only to take $105,000. This covered all of the original cost (83,600+15,000 rehab) plus some.

The note for this loan was 20 years at 5.125% with a monthly payment of $704.51

Here’s the HUD statement from our refi. You can see it cost us $1668 to do the refi.  Not too shabby to get every dollar we spent, back out. We used the money to pay off our Lines of Credit and HELOC, and still had almost 5k left over. This transaction means we made 5,000 on the purchase of this house without even getting a dollar of rent yet.

Rental House #34 Pics

Again this was one where we took our own pics, which are substandard, but we haven’t had to rent it since so we don’t have fancy pictures yet.

Repeat (brrrR)

Don’t worry; we’ve done this since house 27, we will continue using BRRRR on house #35 and beyond.

House #34 Net Worth Update

Since we added this house to the portfolio right after house 33, there hasn’t been much change to the Net Worth (in 2016) minus the forced equity we received by buying the property at a discount.

2020 House 34 Update

This house now rents for $1,345, which makes our Rent to Price ratio now 1.35 = 1345 / 100000. As rents go up, your rent to price ratio should too. This situation right here is why we never want to sell anything.

We’ve also made $5,100 cash flow over the years, and our principal paydown has totaled $12,800. Plus, the house is now worth about $160,000, meaning our trapped equity is around $68,000. Seeing that number makes me want to refi out more cash sometimes.