Landlording & Rental Properties

Breakdown of a $30k Rental Purchase: From Offer to Closing [With Pics & Numbers!]

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Theory can kill you when it comes to investing in real estate. It’s all too easy for investors to get caught up in what they could do, what they dream of doing down the road, and even in education. So what does it take to get out there and make some money now?

The top excuse of virtually all entrepreneurs, business owners, and investors is lack of money. All too often that just enables them to justify not taking action on the important things that will give them the cash they crave.

Dueling it out with the world’s ultra-wealthy to see who can pay the most money for an apartment building in Los Angeles, CA might sound fun. However, you can also get started on the other end of the spectrum by making some good returns on homes that cost less than $40,000 — if you start moving today. In the future, you can always restructure or expand by venturing into other sectors, such as multifamily. The key is to simply get started.

How am I currently doing it?

Marketing & Making Offers

If you make zero offers, you have zero chance of getting a deal today.

I tell people that you have to take a lot of action to get deals. It’s a numbers game. You really have to sift through a lot of subpar listings to find the good ones. My partner and I send anywhere between 50-100 offers on listed properties EACH WEEK. Yes, we have the help of a virtual assistant! We also speed up and streamline this process by always making sure to put a 7-day inspection period as a contingency in the contract.

Related: Case Study: Why $30k Real Estate CAN Be Profitable [With Pictures & Numbers!]

The property at 315 W. 39th Street was recently listed for $25k on the Multiple Listing Service. The seller priced this property to sell from the very start. We offered $14k.

legal-entities

Due Diligence

This property is located right around the corner from our office. So we were very familiar with the location. There is a well-known college close by (Butler University), as well as a park being revitalized. I recommend being in the know of where the city plans on putting investment dollars; this will allow for some great appreciation upside. We got right out there and took a look at the property after the offer was accepted. Turns out that after doing a property walkthrough to verify our rehab numbers, we felt comfortable with our purchase price. In pulling the rent comps, we conservatively priced the rent at $695. I prefer to price rental houses to where they do not sit on the market very long.

Negotiation

The seller on this deal was motivated. When the house was originally listed, it was priced to sell at $25k. Of course, our offer came in much lower at $14k. Thankfully, this was a situation where there wasn’t much going back and forth, as the seller wanted out. The seller did originally counter our $14k offer, but after we simply explained that due to the current condition of the home, we could only purchase it for $14k, the seller decided to accept.

Renovations

The ARV on this house is conservatively $60k. We put roughly $15k into the house with all of the updating. All in, we were at approximately $30k (50% of the value). Since we do a lot of volume in our market, we have contractors who we trust that prioritize our business, can get in and out fast, and turn properties around quickly (and with good quality). Building strong relationships with contractors is key to this business. Here is a link to the budget.

Before

Screen Shot 2016-06-07 at 10.39.49 AM

Screen Shot 2016-06-07 at 10.40.21 AM

Screen Shot 2016-06-07 at 10.40.11 AM Screen Shot 2016-06-07 at 10.40.02 AM

After

Screen Shot 2016-06-07 at 10.40.31 AM

Screen Shot 2016-06-07 at 10.40.38 AM

Screen Shot 2016-06-07 at 10.40.46 AM

Screen Shot 2016-06-07 at 10.40.53 AM

Leasing

At the time of writing this, we are currently marketing the home for rent and expect to have the property rented within 14 days of going on the market.

Closing

This was an all-cash purchase, so the closing was very swift and simple. At just $30k all in, this is the type of deal many investors could also do with their own current cash on hand, 401Ks, or with a credit card or line of working capital. Even those who don’t have access to that type of cash can certainly find a few friends to partner up with or take advantage of some form of syndication, which gives them a share of the deal.

The Numbers

$30,000 All In (Rehab/Holding Costs + Purchase)

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$3,849 Net Rental Income Per Year (See Below for Expense Breakdown)

= 12.8% Cash on Cash Return

Screen Shot 2016-06-07 at 10.42.22 AM

Due to acquiring the property at such a low price, we plan to get the property taxes appealed, which will further increase the returns.

Related: The $30k Rental Property: How to Finance & Profit From Cheap Real Estate

Summary

It can be a lot faster to get results in real estate if you focus on what you can afford to do and then just get out there to make offers, drive properties, and stake those rental signs on a daily basis.

[Editor’s Note: We are republishing this article to help out our newer readers.]

Investors: What rental purchases have you made lately? Any questions about the process described above?

Leave your comments below!

Sterling is an multifamily investor specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded Sonder Investment Group, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to wholesaling and scaling a business.

    David Roberts from Brownstown, Michigan
    Replied over 3 years ago
    Is cap ex included in your maintenance/vacancy numbers? How old is the furnace, roof, windows, HWH? Did you have to replace any of that? Looks nice for a lower income area if that’s what it is…
    Michael Lange from Madison, Wisconsin
    Replied over 3 years ago
    Thank you for this Sterling! My wife and I just did a similar first deal and I see how detailed our rehab list should have been for the contractor (we have some additional charges because of our lack of detail).
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    No, thank you Michael. Being in depth with your budget goes a long way. Your first experience will make things even better second time around!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Great questions David. In the above numbers 25% is allocated for maintenance & vacancy. During the walk-through the ac unit was the big ticket item that was determined to be older & was replaced. There is a link above that includes the budget to contractor in which you will see the additional updates done to the property. Hope that answers your questions
    Katie
    Replied over 3 years ago
    Only $15,000 to rehab? In my town, $15K will get you maybe half a kitchen. “Due to current condition” implies a fixer. In my town, it will cost around $150,000 to rehab a fixer, so I would like to see a break-out of your materials and labor costs. Compared to the ARV, $25k seems like a more than reasonable list price. What was the problem that the seller was willing to accept only $14,000?
    Andre Pritchett from Fairburn, Georgia
    Replied over 3 years ago
    He bought the property for 14k. He probably didn’t put a new kitchen in. A little sanding and painting/staining can greatly improve the look of cabinets and floors and can save tens of thousands. Spending 150k on a rehab of a house that was 14k would be a extreme over improvement and loss of all your money
    Katie
    Replied over 3 years ago
    My point is how is it even possible to do a FULL rehab for only $15,000, regardless of the original acquisition cost? As I said, in my town, $15K will pay for maybe half a new kitchen.
    Randy E. Rental Property Investor from Durham, NC
    Replied over 3 years ago
    I guess the two biggest differences is 1) your town and his town are two very different areas when it comes to price. 2) What you aim for in finish level and what he aims for are two different things. Putting a $30K kitchen reno in a $695 rental would be the height of irresponsibility. In my experience, in my area, with the relationships I have with my contractors, and in the type of properties I buy, $15K seems very reasonable. One other difference may be that the original poster’s use of the term “full rehab” and your use of the same term may have two different meanings. I think you probably imagine a full house gut with all new kitchen and bathrooms, new flooring, new paint, new roof, new systems, etc. From reading the article, I think the original poster meant “full” as in every room in the house needed attention and freshening up, but not that every room needed a complete redo. Still, I’ve done new electrical, new plumbing, new flooring, new paint, and more for $15 or less. It can be done.
    Katie
    Replied over 3 years ago
    I guess it is still not clear to me. I am not talking about high end finishes or trendy appliances. I am talking about durable good quality (which should be the minimum standard, not the cheapy stuff so often seen in a so-called remodel). I am also not talking about gutting the house, but I am talking about a house where every room needs serious attention, not just paint and new carpets. In my town, $15,000 will get you a cosmetic job and that is about all. So I still want to know what accounts for the huge difference. It is not that contractors pay their employees more. There was such a row about the low pay in my town that the city made a regulation, that at least for city jobs, contractors must pay their workers at least $15/hour. The materials from your big box and my big box are the same so that cannot account for it. It cannot possibly take workers in my town considerably longer to complete a project than in other places. The difference may be what some of you have alluded to. No one in the right mind is going to pay more than whatever yields ARV. I wonder if contractors in my town bid according to ARV. The numbers in my town are comparable to some of BP’s case studies if you multiply every by 10. Sounds like a lot of profit for contractors here because materials and labor certainly do not account for it.
    Sina Simingalam Investor from McLean, Virginia
    Replied over 3 years ago
    If you look at the pictures, you can see how much of a change there is. The author even gave a full breakdown of repairs. Go look at that and determine what your costs would be in your area. I doubt it’d be anything close to 150K.
    Brandon Griffin Real Estate Professional from California, Maryland
    Replied over 3 years ago
    Just looking at the kitchen. It was all sweat, paint and a couple rolls of linoleum. They probably got out of the kitchen for a few hundred bucks.
    Katie
    Replied over 3 years ago
    I did look at the pictures. I agree the “rehab” looks mostly cosmetic, which is exactly what $15,000 would get you in my town. However, Sterling says he justified cutting $11,000 off a “priced to sell” list price of $25,000 because of the “current condition” of the house. He implies that the discount is justified because the condition is so poor that it will require significantly more than cosmetics to rehab it, and therefore even the “priced to sell” $25,000 is too high relative to ARV. Clearly, this was not true. Since rehabbers are advised to run the numbers assuming a 20% return, which in this case would be an all-in amount $48,000, it seems the list price was truly priced to sell. I would have paid the list price, or at least the counter offer, rather than take undue advantage of what is apparently an extremely distressed seller. $11,000 is not much, but probably represents a real loss to the seller, while being mostly a trophy for “winning” the negotiation to the buyer. If the seller is not personally distressed, maybe there is some hidden expensive problem that the seller knows about and will come to light sooner or later, making the original list price not really priced to sell and would account for the quick capitulation.
    Vanparham
    Replied over 3 years ago
    What is your town Katie? Can you buy houses for 15-25k? I can where I live and rent for 850 too. Jackson, Ms , so much better when we say where we live. Please don’t tell us you live in Manhattan.
    Katie
    Replied over 3 years ago
    What is your point? Are you suggesting that (for example) a $5000 job should cost $50,000 simply because the house cost $250,000 instead of $25,000?
    James F. Lacy from Fennville, Michigan
    Replied over 2 years ago
    If you’re putting 30k into a kitchen on a roughly $700/mo rental you are doing things wrong… Prices will vary depending on area… If houses are selling for 24k in an area there is no way a contractor will ever get work charging 30k for a kitchen so they will of course change pricing to match the market
    Katie
    Replied over 2 years ago
    There is no real difference in material and labor costs, so how do you put in a decent kitchen for much less than the average cost of a kitchen?
    Matthew Winans Investor from Atlanta, Michigan
    Replied over 2 years ago
    Katie, Im not quite sure what your point is… The photos show what was done on the house… I have done lots of these types… I just bought my last house for 10K and put 15K in it… Mostly my sweat.. I can rent it in my area for $650 ish… If you plan to do more than these photos and spend 150K, you had better be able to collect $6,500 ish for rent each month
    Katie
    Replied over 2 years ago
    I am not saying I plan to do more than your photos. I just do not see how you are doing it so cheaply, unless you are doing all the labor, and so have no labor costs. Labor is like 70% of the cost of any job.
    Dawn A. Rental Property Investor from Milwaukee, WI
    Replied over 3 years ago
    $15,000 sounds like a very viable rehab number. I just helped rehab a duplex for about that amount which included a new roof.
    Katie
    Replied over 3 years ago
    So then what accounts for the difference?
    Shaun Palmer Rental Property Investor / Construction Manager from Raleigh, NC
    Replied over 3 years ago
    Great article. Thanks for sharing with such great detail.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for the kind words Shaun. Glad you enjoyed it.
    Lennon Lee Rental Property Investor from Miami, FL
    Replied over 3 years ago
    Thanks for sharing. You’ve done a great job at explaining in simple terms and simple numbers the whole process. The exact numbers and motivation from the seller are not relevant (at least to me). Being a wannabe investor, and understanding that each property and each transaction is different, this “case study” was super helpful.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Glad you enjoyed the breakdown Lennon. Can you clarify your meaning of wannabe investor?
    Dumitru Anton from Northbrook, Illinois
    Replied over 3 years ago
    I think Lennon is saying he is in learning-mode, not action-mode yet. congrats on the jobs, looks really nice. @ Sterling White, since you know your market, a particular question: since your neighborhood is in the earlier faze of “up and coming”, did you investigate rentals (geared to medical professionals) near a major hospital/clinic? just curious…
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for the clearing that up Dumitru. Interesting choice of words by Lennon. That is a great question & I did not dig into investigating rentals (geared to medical professionals). I am sure there are some medical professional that live within the area.
    Dumitru Anton from Northbrook, Illinois
    Replied over 3 years ago
    @Sterling White, Please then add teachers, firefighters and workers for the city to your list. They may be required to live within X number of miles from location served and usually bring stability/security and neighborhoods up. Also may qualify for additional first time buyers incentives which gives you another exit strategy.
    Katie
    Replied over 3 years ago
    In this case, it would be helpful to know why the seller was willing to take such a big discount on a house that was already “priced to sell.” Is there some expensive problem that will come to light after a tenant moves in? If the house was already a good deal at the price, I would have given the seller his asking price, as opposed to taking undue advantage of the seller’s distress, whatever the reason.
    Matthew Winans Investor from Atlanta, Michigan
    Replied over 2 years ago
    I’ve learned… If you don’t ask… you don’t get
    Zach Quick Investor from Pittsburg, Kansas
    Replied over 3 years ago
    They put in an offer and he accepted. They didn’t force the seller to accept. Nothing unethical about what he outlined above.
    Rob Cook Real Estate Entrepreneur & Coach from Powell, Wyoming
    Replied over 3 years ago
    Agreed Zach. As long as a buyer does his due diligence, the risks of big surprises are reduced sufficiently to enable moving forward. Only guarantees are 1/2% in CDs. No risk, no reward. And being too cautious will let others swoop in and “steal” the deal right out from under your nose while you obsess on all the possibilities that could go wrong. Analysis Paralysis.
    David McLean Rental Property Investor from Chattanooga, TN
    Replied over 3 years ago
    Sterling, any plans to do a cash out refi at some point? Nice job!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    That is a possibility David in 3-5 years. Great question! Do you currently use leverage on your rentals?
    Jessica Duncan from Las Vegas, Nevada
    Replied over 3 years ago
    Great article! Thanks for posting! I think I’d want to do a cash out refi after it seasoned for a year to pull my cash out while still having it cashflow! 🙂
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Good idea Jessica. Thank you so much for the suggestion.
    Jamie Kenerson Real Estate Agent from Gaithersburg, Maryland
    Replied over 3 years ago
    Thanks for sharing the breakdown and your spreadsheet as well! Great job!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Anytime Jamie. Glad you found value in the breakdown. Thank you so much for stopping by for the read.
    Michael Sadler from Edmonton, AB
    Replied over 3 years ago
    Are these good enough cash on cash returns for the risk?
    Jason Stratman Investor from La Crosse, Wisconsin
    Replied over 3 years ago
    It’s obviously all relative and based on an individuals outlook… but personally I would look at it compared to the stock market, where I would say the majority of people primarily invest. It’s very common for people to have at least $30,000 invested in the stock market, which historically has returns at 6-7%. The cash on cash return for this property is 45-50% better than historical stock market returns, so I would say it’s worth it.
    Katie
    Replied over 3 years ago
    Remember, that 6-7% historical return assumes a beginning principal left to ride for about 120 years. No individual investor does that. It also assumes no taxes or fees. That is why every study comparing the two finds individual returns to be a fraction of historical market returns. So the return on this property is far, far better than individual stock market returns.
    OB
    Replied over 3 years ago
    Thanks for sharing the excellent case study! One question. You mentioned that you had offered 14k, got it accepted, and then afterwards you walked the property to check your rehab estimates. So how did you come up with your initial rehab estimate before even visiting? Was it just simply by looking at pictures? Do you include inspection contingencies to give yourself an out?
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    That is correct OB. 1) We send out hundreds of offers on listed properties so fairly difficult to physically walk-through each one. So prior till placing submitting an offer the pictures are looked at to determine rehab number. 2) When the taxes were entered into the spreadsheet originally there was a mishap, which once corrected also led to renegotiating the purchase price. 3) Yes in every one of these offers there is a 7 day inspection period contingency
    Tricia O'Brien
    Replied over 3 years ago
    What is a syndication and how would that work in getting money for the rehab in an example like this?
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Tricia, Maybe someone else will be able to chime in on this. I am not familiar with this process so unable to offer suggestions. Do you currently have a deal you are looking to receive funding for?
    Tricia O'Brien
    Replied over 3 years ago
    Smart investment! What year was this house built?
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Older home built in 1900.
    Isaiah Richardson Flipper/Rehabber from Bedford, IN
    Replied over 3 years ago
    Nice, the house I’m working on was also built in 1900.
    Timothy
    Replied over 3 years ago
    Just happened that way, or do you seek out these older places?
    Timothy
    Replied over 3 years ago
    Just happened that way, or do you seek out these older places?
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied over 3 years ago
    thanks Sterling For all of the great content you’re producing you’re doing about a Blog a week it seems we moved to buying under $30,000 houses as well in the Southeast specifically Georgia we buy double wide mobile homes on their own land it’s not in parks for all in 35k or less and we get $1,000 a month but we only do rent-to-own to up the quality of tenant and then we offer seller financing after 12 months to appeal to the move up or aspirational renter. Doing double wides rent to own is a great business model.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Curt, I shoot for 2-3 pieces of content per week, but looks like I need to step things up. Thank you for the kind words Curt. Creating as much value as I can. There has been quite a bit of buzz here lately about mobile park home investing. How has the experience been for you?
    Rob Cook Real Estate Entrepreneur & Coach from Powell, Wyoming
    Replied over 3 years ago
    Keep in mind there will be no secondary market financing available on any type mobile home (personal property) or the land it is on either. So relegated to private financing or cash deals. STILL a great business opportunity in them. Way to go Curt!
    Patrick Devlin Rental Property Investor from Richmond, VA
    Replied over 3 years ago
    Great case study, thank you! Now it’s time to finance it and leverage your money. For easy math, let’s say you take a loan on 50% of the ARV at 6%…You’ll pay 6% on $30k ($100 per month) dropping your cash flow to $220, but then you take your $30k investment back out and go do this again. Mathematically, you’d be earning $220 per month on a $0 investment. Calculate that rate of return.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    The power of real estate! Thank you for the comment Patrick. Are you currently utilizing leverage on your properties?
    Nathan Brooks Real Estate Investor from Kansas City, KS
    Replied over 3 years ago
    Haters gonna hate! All good though Sterling … great find, great deal, great looking rehab for what you were doing here … everything is relative. As long as you did the seller right, your contractor/rehab right, and set the tenant up with a nice rental … it’s a win. Great job, great post, now go find another 100 of those babies!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for the kind words Nathan! Love the enthusiasm! The hustle never stops.
    Kevin Fox
    Replied over 3 years ago
    Being in San Diego, it still blows my mind every time I think about a decent size, rentable property selling for $30K. I mean, I have clients pay more than that in closing costs fairly regularly. I’ve always been curious about what commission agents are being paid on properties like those. I can’t imaging they’d only take 3% ($900) for a deal like this, but I really have no insight. Anyone know?
    Kiki
    Replied over 2 years ago
    In Indiana most realtors charge 7% on anything under 300k. So the total commission before split would be $980. Indiana is my home state so I’m used to those prices. I’m always surprised at how much realtors get paid in other states.
    Katie
    Replied over 3 years ago
    As a fellow Californian, I see it from the other way. Why on earth do we have to pay 6% (the standard commission, 1.5% for sellers broker, 1.5% for sellers agent, same split for buyers broker and agent. If there is no buyer’s agent, the seller’s broker and agent keeps 6%), on a $700,000 fixer? That’s a $10,500 pay day for each party, and the buyer’s agent did nothing but unlock the front door. Honestly, maybe the cheaper house deserves a relatively bigger commission because it probably takes more work to sell it.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Realtor commissions is virtually the same here when dealing with these homes. Varies between 3-5%.
    Marcia Dabrowski Investor from Naperville, Illinois
    Replied over 3 years ago
    Great post Sterling. Regarding refinancing to get your cash out of the property… We have some $30,000 properties and have found it difficult to find banks/lenders willing to refinance properties in this price range. Do you or any BP members have recommendations or referrals for refi lenders?
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    I have not used leverage as of yet on properties at this price point. I am aware there are lenders out there that do simply have to call around. Maybe another investor will be able to chime in.
    Matt Pagano Investor from Corona, California
    Replied over 3 years ago
    Marcia- I have my first property through Bank of America. Total amount financed was $19,200 and I hope to do my cash out refi on my second property with them. I am just waiting the 6 month seasoning time.
    Daniel Roberts Wholesaler from Camden, South Carolina
    Replied over 3 years ago
    This is a great article. I especially like the breakdown, spreadsheet and pics. Great to see a real project, not hypotheticals on paper. I’ve done about 8 of these in South Carolina in the past 3 years. Great return for the investment. We just finished one that was purchased for $22,000, invested $10,000 and rented last week @ $650. Very similar to your end numbers! Thanks for sharing! Daniel / Arthur Investments, LLC
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for the kinds words Daniel. Congrats on your recent purchase! How are the economics in South Carolina?
    Scott Wang Investor from Thorp, Wisconsin
    Replied over 3 years ago
    Hey Sterling, do you have a minimum cash-on-cash return that you aim for? Here in central/rural Wisconsin I have trouble finding single-family properties that will return more than 8%. A $40k house around here would rent for about $500. With an 8% target, I find a couple options here and there, but not very much that stands out. -Scott
    Tim
    Replied over 3 years ago
    Sterling, Thanks for the post. Can you tell me a little about how you use a VA to write so many offers. I’m curious about how you show proof of funds. Thanks again, Tim.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    I have a screenshot of the operating bank account with the funds to purchase the property and the VA fills in the actual details of the contract i.e. purchase price, contingency period, property address Hope that answers your questions
    Katie
    Replied over 3 years ago
    I have a similar question. Here in California, if the property is not FSBO, most sellers agents will not present an offer NOT written on the standard California Association of Realtors form and signed by an agent including the agent’s code number. If FSBO or not on the MLS, then I can write my own offer. Also in California, “offer” is a misnomer. The CAR form is actually a purchase agreement. If the “offer” is accepted, it instantly turns into a contract. If you have too many of them out there at once, you take the chance the more than one acceptance at a time will put you in a financially untenable situation.
    Rob Cook Real Estate Entrepreneur & Coach from Powell, Wyoming
    Replied over 3 years ago
    That is what his escape clause is for, among other purposes. Inspection contingency is an escape clause if written properly, which I am sure his is.
    Matt Pagano Investor from Corona, California
    Replied over 3 years ago
    Great article. I’m in the process of doing almost the same deal on my second investment property. My deal total purchase was $24,500 and my rehab about $10,000. Comps in the area around $50,000 to $60,000 and my expected rent is $700 – $800. Rehab is such an ambiguous word, for my situation it means flooring and paint and then mainly cleaning things up such as new closet doors, light fixtures,paint etc. No major purchases in the rehab such as a furnace or A/C unit. This is my first cash purchase and has me a little nervous, but my numbers look good and I hope in 6 months to do a cash out refi. Thank you again for a great article.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    You are very welcome Matt. What did you allocate for maintenance & vacancy in your numbers?
    Rob Cook Real Estate Entrepreneur & Coach from Powell, Wyoming
    Replied over 3 years ago
    I was impressed at how conservatively you included such allowances in your analysis Sterling. Smart!
    Matt Pagano Investor from Corona, California
    Replied over 3 years ago
    Great article. I’m in the process of doing almost the same deal on my second investment property. My deal total purchase was $24,500 and my rehab about $10,000. Comps in the area around $50,000 to $60,000 and my expected rent is $700 – $800. Rehab is such an ambiguous word, for my situation it means flooring and paint and then mainly cleaning things up such as new closet doors, light fixtures,paint etc. No major purchases in the rehab such as a furnace or A/C unit. This is my first cash purchase and has me a little nervous, but my numbers look good and I hope in 6 months to do a cash out refi. Thank you again for a great article.
    Amber Webb from Wade, North Carolina
    Replied over 3 years ago
    This is a very helpful article. Thank you for sharing!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Glad you enjoyed the read. Enjoy the rest of your lovely Thursday!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Glad you enjoyed the read. Enjoy the rest of your lovely Thursday!
    Jeffrey Townsend Real Estate Investor, Wholesaler from Kalamazoo, Michigan
    Replied over 3 years ago
    Great read. Thank you for sharing!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    You are very welcome!
    Lisa Phillips Real Estate Investor from Arlington, VA
    Replied over 3 years ago
    Good job, you’re making everyone a sub30k believer!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for pointing that out. Do you invest in properties at this price point, Lisa?
    Matthew Schroeder Investor from Carmel, Indiana
    Replied over 3 years ago
    Nice work, Sterling! I know exactly where your property is located. I wish you much success!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Great to hear from you Matthew. Hope all has been well since we have last spoke. Thank you for the kind words! Best of luck to you as well.
    Jessica Dunkle Investor from Cleveland, Tennessee
    Replied over 3 years ago
    Love this post! Thank you for breaking it down. These are exactly the kinds of properties we are looking to buy. It is great to see the numbers. 🙂
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Jessica glad you enjoyed the breakdown. With this asset class it’s very critical to screen the tenants. Will you be using a PM company or self managing?
    Jessica Dunkle Investor from Cleveland, Tennessee
    Replied about 3 years ago
    We will be using a PM company for that exact reason. We want to make sure that they are screened well and that the right person or family gets into our home.
    Eva
    Replied over 3 years ago
    This is a great article with a lot of information and suggestions in the comments. My husband and I have been doing research to buy our first property for about a year now. The budget and reno breakdown is great! Wishing you much success!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for the kinds words Eva. What market do you plan on making your first purchase in?
    Melroy D
    Replied over 3 years ago
    Great article as usual Sterling. Thanks for sharing the numbers and breakdown. I am surprised you pulled out the tiles from the bathroom and replaced with vinyl. Some of the upgrades seem a bit much for $695 rent. Is this is a 2 bed by any chance? BTW, how did your world record go, noticed you took it out of your profile 🙂
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Melroy this is a 2 bed 1 bath with 1 car detached. I am still training for record. Battling through some injuries unfortunately. In due time that record is mine!
    Julie Rogers from North Lauderdale, Florida
    Replied over 3 years ago
    Nice article! Great find, and rehab. No way I can find a house for that price, but I am able to rehab for around $10,000. I do the work myself, which saves a lot. Have not used a contractor yet, and I do much better work than they do. Some things you have to get a pro in for, but in the area I purchase, they are very honest and reasonable. On my second home now.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thanks for the comment Julie! Are you fixing your properties up to rent or sell them?
    Jeff Deleon
    Replied over 3 years ago
    Thank you Sterling for sharing – one key I find helpful is not to over rehab. Knowing your market is key in knowing how much rehab to put into a real estate investment. Sometimes just paint and new carpet will do other times you need to update countertops and fixtures. Building a good rapport with contractors is also essential!
    Karl B. Rental Property Investor from Los Angeles, CA
    Replied over 3 years ago
    Another great post, Sterling! Where do you typically find your properties? The MLS? Or is it a few different places like driving for dollars and sheriff sales?
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Mostly find off-market deals through direct mail & referrals. 20% of the inventory we purchase is through the MLS.
    Danny Carter Investor from Los Angeles, California
    Replied over 3 years ago
    Great post Sterling. My brother lives in Indianapolis, and I’m looking for partners on the ground there for fix and flip projects. I’d like to speak to your more in detail when time permits. -DC
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Shoot me a DM Danny. I will do the best I can to assist. I strictly focus on buy & hold, but can offer some market insight to your relative.
    Gareth Mahon Investor from Melbourne, Victoria
    Replied over 3 years ago
    Great post Sterling! Thank you for sharing the case study with us. I love detail you’ve gone into. It clarifies the workings of the strategy. Is this kind of deal refinancable after a suitable period of the tenant settling in? Thanks Gareth
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for the kind words Gareth. I do not plan to refinance this deal at the moment, but it is an option to consider in the mere future.
    Steven Leigh Wholesaler from Dayton, Ohio
    Replied over 3 years ago
    Oh man, thank you so much Sterling for all this great detail! This is what is missing from so much of the Investing info out there, actual numbers, photos, and details! Question for you: When you’re making so many offers each week, especially MLS listings, do you have a realtor on staff or do you just have a realtor willing to do this many offers? Also, for listings not on MLS, how do you generally make offers? Over the phone? Send by email? What’s the process like?
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    We have someone in house who puts the offers in. They are a licensed broker. The non MLS deals are found mostly through direct mail. Yellow letters are very effective as well as postcards.
    Ahmad Darensbourg from La Place, Louisiana
    Replied about 3 years ago
    Quick question. Once I’ve put together a tax delinquent list, how should I contact these people ?
    Paul Amegatcher Rental Property Investor from Brookville, OH
    Replied over 2 years ago
    Just send them a postcard stating that you are interested in buying their property.
    Danny
    Replied about 3 years ago
    Thanks for the article, Sterling. Just wondering how you tax federal and state income tax into your decision-making calculus. As income tax rates will generally be greater than long term cap gains treatment you would get if you invested your $30K in securities, for example, it seems like tax treatment should be a fairly important consideration in your analysis. Granted ,with the 12+% annual return you’re getting on this property, seems like your in a pretty good spot even even taking into account that your state + federal income tax rate is likely substantially greater than the long term cap gains rate. Would still appreciate hearing your thoughts more generally. Thanks!
    Danny
    Replied about 3 years ago
    *how you take
    Ray Morris Jr. from Jacksonville, Florida
    Replied over 2 years ago
    According to some other BP articles, you can’t make money on houses under 30k. LOL!
    Robert Messel from Vancouver, Washington
    Replied over 2 years ago
    Thanks for taking the time to document and share this, Sterling. I’m just getting started, and this is the type of deal I’m looking for. I’m curious how you would have approached this if: either because the house was worth more, or your reserves were smaller, you had to choose between putting all your cash into the house, or taking out a loan, so you had enough in your reserves for the next deal. In other words, is it better to have most your cash tied up in one property, or be leveraged (responsibly) across more properties with risk spread out between them?
    Joel Weddington Investor from Daly City, California
    Replied over 2 years ago
    This is a wonderful example that blows the whistle on the TK vendors, who do the exact same procedure and then sell the property at or even above market level to passive real estate investors who become landlords and get a little monthly check. I was one of them but thank goodness I caught on to the game. Now, stuck with two out of state properties that will probably take years to become profitable, I’m doing what the big boys and girls are doing on my next deal: making a way under market offer on a beater house an hour drive from my home, and project managing the rehab in my spare time. I’m trying to alert others who are being rooked like this by TK vendors (that give us great looking numbers and have us sign disclaimers that any of them are accurate). Being a passive income buy and hold RE investor is no more lucrative than mutual funds or the stockmarket. The TK vendor makes all the profit up front, and sanitizes the investment, perhaps making it less risky but also draining all the profit that real estate brings. Poof! We are making TK vendors rich, not ourselves,
    Bob D.
    Replied over 2 years ago
    Am I missing something? The “budget” link shows a bottom line expenditure of $15K with no detail. A budget is only of value when itemized — otherwise it’s just a wild guess.
    Bob D.
    Replied over 2 years ago
    Am I missing something? The “budget” link shows a bottom line expenditure of $15K with no detail. A budget is only of value when itemized — otherwise it’s just a wild guess.
    Shaun R. from Denham Springs, LA
    Replied over 2 years ago
    I could potentially do a deal like this with a loan from my 401k. Do you have any problems doing cash out re-fi’s on these lower priced properties to get some of your cash out?
    Zack Sexton
    Replied over 2 years ago
    Where was this house/rental purchased? Here in AZ you would be lucky to find something for $175,000. Sure you can find stuff for around $100,000 if you are okay with meth labs and prostitutes in your front yard.
    Kiki
    Replied over 2 years ago
    I’m assuming Indianapolis Indiana (where Butler is located)
    Zack Sexton
    Replied over 2 years ago
    Wow must be nice! I wish I could find something like that here. Great write up by the way!
    Michele
    Replied over 2 years ago
    As I was reading the numbers I thought this has to be in Indy (my home state) I’ve invested in many states and you just can’t get the prices you can in Indianapolis anywhere else. Even rehab work is a fraction of what it is everywhere else. I redid a house in Carmel and paid 20k in labor rehab. I did the same exact thing to a house in Dallas and paid 50k.
    Collin Smith Investor from Florence, South Carolina
    Replied over 2 years ago
    I am curious about the condition of this house after a renter moves out. I have a couple homes that would be in the same “value” as the one in this article, but once a renter moves out there is a lot of work to be done to get it ready again. Floors destroyed, walls a mess (repaint completely) appliances left a mess/unusable,… What sort of expense do you run into between tenants at your lower income properties? Thanks
    Holly Olp from Centerville, Massachusetts
    Replied over 2 years ago
    Great article @sterling white! I noticed you said you have an agent in house who writes your offers. For someone just starting out, do you recommend hiring someone right away or how do I go about getting an agent who is willing to submit as much? I know it’s work for them and not many want to put in that time for a newbie… Perhaps rightfully so. How does one begin submitting a high volume of offers?
    Costa Genesis from Delray Beach, Florida
    Replied over 2 years ago
    Hi Sterling I’m not sure if I’m missing something but when I did the comps for the area for an older House 2 bedroom 1 bath or 2 bedroom 2 bath I could only come up with an arv of about $40,000 Max and that was fully renovated. What am I missing?
    Nick Eckemoff from Triangle, North Carolina
    Replied over 2 years ago
    This is a relatively nice house to buy at 15k. In my area, you can’t find anything like that… 15k will get you something that would have to be completely gutted…new roof, new drywall, etc. 15k can hardly buy a small lot of land! I am not sure about the neighborhood or area, but you wont get 700 rent for a house like that in the areas I look. 500 (or less) is more realistic and the tenant quality wont be the best. This would totally kill your return… My opinion is your estimated expenses are too low. Here is what I’d estimate for 700 rent… 115 management (10%, 1/2 first month rent, and 100-200 advertising fee for a quality management company) 150 capex savings (perhaps depending on a more detailed analysis, but it is an older home and this probably is close) 50 vacancy (7%) 120 property and state tax (not 100% sure about that area) Where permits and other city fees considered? 8% is a more appropriate return in my mind, which is still good. 2500 per year of profits or 200 per month, but being its a lower end property, what happens if you have to evict or repair? HOWEVER, say you can only get 500 rent. Your return just turned into 2%. Not much a of a buffer in case things go wrong and the risk is high for these types of properties. One tenant turnover and you’re done. Using cash and buying in a (likely) low appreciation area (can’t confirm this), you aren’t benefiting from long term appreciation and equity from a tenant paying off your mortgage on a nicer house. I wouldn’t feel comfortable owning that house for 30 years personally. I hate sounding like a naysayer, but just want to throw this out there for people to take into consideration a more realistic situation. You may be right in your numbers after all, but for others reading… be cautions because your area might be different.
    Nick Eckemoff from Triangle, North Carolina
    Replied over 2 years ago
    Forgot to include insurance in my numbers even though it was calculated for… Not sure how much it cost in LA being there are earth quakes etc, but i assumed 50 per month in my numbers. This is probably a low estimate… if it was 1000 per year and the house rented for 500 per month, you’re at 0% ROI.
    Nick Eckemoff from Triangle, North Carolina
    Replied over 2 years ago
    Also notice this is LA, CA….your taxes and fees are going to be much higher. And evicting a tenant will be difficult.
    Erik Orozco from Mcallen, Texas
    Replied over 2 years ago
    Awesome Article Sterling! I’ve recently changed my focus started making offers on what I could do and afford in rental properties TODAY! Not what I might be able to afford in 5 or 10 years. Thanks for the insight!
    Joel Weddington Investor from Daly City, California
    Replied over 2 years ago
    Its all relative. In my area a fixer-upper 1 bedroom 1 bath condo lists for $340k and will go for $440k quickly. I sold a studio last year for $310k which was up from $250k in less than 2 years and it was pristine, not even a fixer. But with 25% down the rent is negative cash flow. Its not the purchase price, its the principles and they work if followed. The author is not a passive investor, and shouldn’t be compared to those of us who are buying from turnkey investors. This is a very real scenario and one I’m trying to duplicate right now, having seen through the false promise of profits from TK investing.
    Mandela Muhammad Investor from Bronx, New York
    Replied over 2 years ago
    @SterlingWhite great post, your doing something right when you have haters. Thanks for showing things can be done for under 30k.
    Alan DeRossett Investor from Thousand Oaks, California
    Replied over 2 years ago
    Congrats! This looks great. Im amazed and a bit jealous that properties can be found at such a good price point in my area this would not be possible. I never understand how Tenants could pay $695 in rent but not able to buy like you’ve done. i’ bought three properties with zero down and without banks owners carry. But some will never buy I guess. I have o long term tenants i joke about with family that they paid off our mortgage for us. but still rent.
    Kent Johnson Investor from Hartselle, Alabama
    Replied over 2 years ago
    Sterling, Thanks for all your articles and knowledge sharing. How are you able to get insurance at $22/month? I have similar properties that are $60/month. Thanks, Kent
    Marcus Smith Real Estate Agent from Madison, Alabama
    Replied over 2 years ago
    Excellent read…I’d love to pick your brain sometime.
    Dan Heuschele Investor from Poway, CA
    Replied over 2 years ago
    I would like to see the breakdown of estimated cap expense (life span and associated cost). I see no way $173 covers maintenance, vacancy and cap expense. In fact, I would be surprised if you could convince me that it covers cap expense. If I remove 5% for vacancy you have $138/month for maintenance and cap expense. The issue is the cap expense and maintenance are not as much functions of the rent as much as a function of the size/makeup of the property. Basing them on rent is flawed from the start. If I use $250 for maintenance and cap expense (which is lower than I use on my own properties) you would have just over $200/month cash flow (not bad) but this was with no financing (cash purchase). Virtually every property cash flows if it is not financed. Fortunately you made ~$30K on the rehab and maybe it has appreciated since purchase. In addition, while I suspect your cash flow numbers are significantly inflated on long-term actuals, the property likely does cash flow (just not as well as your numbers indicate). It appears to be a solid investment (instant equity and a small amount of cash flow).
    William Bates Residential Real Estate Broker from portland, or
    Replied over 2 years ago
    It must be a Midwest and down south thing. I don’t think it’s possible to buy a house that low on the west coast congrats. That’s why I’m looking to buy there, Texas and Florida….
    Rob
    Replied over 2 years ago
    Holy cow, property taxes are 9% of your purchase price, 4% of all-in price. That’s insane!