The Accidental Great Deal

So let's start at the beginning shall we?  Long before I knew what cash-flow meant, or how to calculate a total ROI, I really just wanted a place to live at a reasonable price.  After being forced to live in a dorm for 4 years, I moved in with my homeowner friend and paid him rent.  We were 4 dudes in a bachelor home with bean bag furniture and a loaded bar close to the beach, why would I ever need to do something crazy like "look for a home?"  And so responsibility was delayed for another 2 years...  Meanwhile, my friend meanwhile was pocketing close to $600/mo cash flow from us.

Well the friendship went sour, and I found myself living out of my 1996 convertible Mustang in northwest Florida, bouncing from bed to bed, and scouting rental properties that seemed ridiculously overpriced.  

Despite my awkward living situation, I refused to consciously make a bad deal.  It didn't take a degree in mathematics to figure out that in my area, with mortgage rates hovering around 3.75%, it would be way cheaper to pay a mortgage, and also build my equity at the same time. I didn't factor in insurance, taxes, vacancy, maintenance, or the HOA, but luckily my incomplete understanding of real estate expenses didn't change the fact that it wasn't hard to find a good deal.

So I found a realtor (a great realtor, who I still keep in contact with).  After several showings, we stumbled onto a great townhome built in 2005.  She urged me "you better put an offer in today, otherwise these will be under contract tomorrow."  Which scared the crap out of me, a $100,000 decision based on a 10 minute walkthrough with not even a day to think about it?? This must be a scam!  But I caved, and put the home under contract with a VA loan and 10% down payment, 4k under the asking price. 

At some point, she mentioned the home being something called a "short sale," whatever that was... And thus began the learning curve.

I had no idea what I was doing.  The short sale had two mortgages from 2 difference banks, a divorced husband who lived in Hawaii, and to top it off, a 17k HOA lien... I felt in over my head, and kept getting hit with closing costs from ridiculous things I didn't understand like "doc stamps," "surveys," and this ridiculous thing called an "appraisal."  I was ready to pull my hair out and run away from this monster I didn't understand. 

After 6 months of waiting, the bank finally came back and denied the package, because there was $348 dollars of the almost $50,000 they weren't willing to forgive...  what?!  $350 was going to kill this after 6 months?  No way!  I agreed to pay the difference.

Then the bank insisted that we close on 29 March, and not a day later.  Well, my full-time job had me traveling and I couldn't return until the 30th.  I was forced to sign and notarize all my documents in a UPS store in Key West, FL and overnight them back.  I then traveled straight to the airport, boarded a plane and actually beat my documents back to the title company.  I picked up my complementary bottle of wine before they even saw my signature.    

I still live in this townhome, but with the new family, we are in the process of looking for a home with a bigger garage and huge yard.  Now I look back and am amazed that it worked out.  I paid significantly under market value without knowing it, somehow survived this short sale, and when I do move out, I'll cash flow over $300 a month.  I thought it was a nightmare during, and I almost backed out a dozen times, but sometimes the stars align.  Here are the specs for those interested:

Enclosed townhome in group of 20.  3 Bed/ 2.5 Bath, 2 story w/ attached garage, common area yard.  Built in 2005 and in great shape, no renovations needed.

Asked 95,000, purchased at 91,000.  3.625 interest rate w/ VA loan and 10% down (to minimize the funding fee).  Closing costs = approx. $3,500.

Tax: $600 w/ homestead ($1,200 without); Insurance: $1,200; HOA: $98/mo. 

7% vacancy and 5% maintenance (ultra conservative...) yields OE = $346 mo.  Debt service = $373.

Units on both sides of mine rent for $1095 each.  NOI = $676.85 mo.

Cash flow = $303/mo.  Cash-On-Cash = 27.51% (heck yes!)

And if I had been smart enough to use the 0% down w/ with the VA loan.... then I'd have $260 cash flow, 85% cash-on-cash, 144.78% overall ROI!  Hindsight is 20/20, but at least I know for next time.

Thanks for reading!