3 houses for the price of 1
Real estate can be pretty crazy sometimes. Imagine searching for a home and finding a rental property that costs $118,000. Now imagine that you could rent out that home for $2,225. I know what you're thinking -- no way that could ever happen -- can't buy a property that cheap and get that much rent.
Well, I came across a rehab team that was selling not one, but actually three houses for a total price of $118,000. One was rented at $800/month, one at $600/month, and the other was unoccupied. The first was rehabbed inside and out in 2009, the other in 2011, and the unoccupied one just got finished being rehabbed this year (2013).
The rehabs included new siding, new roofs, new paint, new carpet, new kitchen cabinets, etc. Very nicely done. I know that the unoccupied one could get about $825 per month in rent as I just rented out a similar house for that amount and that one wasn't as "newly done" as this one.
However, $2,225 per month in rent would be much better for one house than for three houses, because with 3 houses, you have 3 roofs, 3 furnaces, etc.
According to the "2% rule" these would come in at 1.89%.
Ultimately I think these would have been nice houses to have, however I did wind up passing on them. There is only so much capital and based on this, I have to be extremely selective on what I get. This is the downside on having so much inventory -- so many potential deals to go through.
Comments (12)
Awww, sorry it didn't pan out. But... Looking is the funnest anyway!
Deborah Burian, over 10 years ago
Actually I prefer being close to 3% (or over) but I could go down to 2.3% for fully rehabbed units. But they did not want to budge on price.
Dawn Anastasi, over 10 years ago
Dawn, The solution is simple. Tell them you only buy deals where the rent yield is >2% and offer them 110K.
Roy N., over 10 years ago
good post
Lisa Phillips, over 10 years ago
Dawn, In some markets this would have been a good deal. The mistake many people make (including me) is to over leverage (lines of credit on inventory etc) and 'hoping' that it will work out. Sometimes it does but most times it doesnt
Ryan Ebanks, over 10 years ago
I did ask about seller financing and they were not interested in that. If they could have sold, they were okay with either cash or conventional financing (although that would have been tricky as it was 3 properties not one). Ideally they would have taken the money and used it for another project. The rental amounts were a little low, but not too bad. Long-term tenants who take care of the property would be more important to me than more turnover and a few extra bucks in rent each month.
Dawn Anastasi, over 10 years ago
Dawn, was there a "creative" play here? Carrying back a second? Seller financing? Or did they need to cash out immediately? Was there upside in the rent roll to squeeze out more dollars/month? I am assuming you already had these conversations, but just thinking out loud here.
Nick Walters, over 10 years ago
1.89% would be great for some people -- maybe I should start posting all my "scraps" and "cast offs" in the Marketplace? :) (just kidding)
Dawn Anastasi, over 10 years ago
Dawn - great job. 1.89% is close to 2%, but it would've had to been 2360 with a capital costs of at most $1180. It's awesome to see these rules in practice. Congrats again.
David Rundle, over 10 years ago
I commend you Dawn for not falling into the investing trap of "missing out" and purchasing properties that don't make the cut!
Alex Anderson, over 10 years ago
I already have 6 mortgages so I'm past the point of getting "easy" mortgages. Getting a more difficult one, especially with the "three in one" would be too time-consuming for the price. And yes, the deal is too thin for what I normally get. :) This was their bottom line number down from about $127,000. I understand where they're coming from; they rehab the properties really well and then go to sell them retail. Not sure if the first two from 2009 and 2011 were intended to be rentals but they did put tenants in them. The one rehabbed this year was also done really well and they were going to list it with a realtor. If it didn't sell they'd rent it out. So they were not desperate to sell either.
Dawn Anastasi, over 10 years ago
Would you be able to finance the purchase as a package? If you have to buy all 3 and need to go cash that is a lot of capital to put up. If you can get a loan on it that makes it more interesting. Also based on some of the other stuff I've read the deal actually sounds thin for you at that price. :) BTW if they only want to sell as a package and financing would be difficult there is some leverage there. Maybe try getting it in the low $100s or less if you can get the capital. One good thing about a lot of inventory is that you can always play the "I like you houses but there are 20 other ones around here that I can get better returns on".
Shaun Reilly, over 10 years ago