Finding A Great Deal In An Inflated Market
Hello BP
I wanted to share a success story in finding a great deal in an inflated market. I live in a state where there are tons of investors from around the country, and around the world frankly. A lot of money comes into this area to buy up real estate. It is very competitive and difficult in my opinion to find a property that will cash flow month after month since the prices have been driven up so much in the last year. Many people I meet are happy to get a 6% return on a rental property and are banking on the house prices continuing to rise for their investment model.
Instead of trying to rent out the house as a whole, my plan was that I would rent out the rooms in the house. To break it down for you, I found a large house, of 2000 square feet, 3 bed 2 bath home in a decent (but not stellar neighborhood). The neighborhood is safe and fine, and I would consider it very safe, but it is definitely not high end.
The house actually had 4 bedrooms, even though it was listed as a 3 bedroom house. There was a lot of extra room in this house, so with the basement, I was able to add 2 additional good sized bedrooms for the cost of $15000 approximately. The $15,000 invested also paid for some needed touch ups to the house with flooring and paint. Each room rents out for $600/month with one room renting out for $650 because it is larger than the rest.
Here are the numbers
Purchase Price - $195,000
Down payment (20%) - $39,000
Rehab costs - $15,000
Now the break down on the monthly cash flow
Gross Rents monthly- $3650
Monthly payment (principle, interest, taxes) - $904
Monthly expenses I incur (garbage, utilities, etc etc) - $650
Profit per month - $2096
Projected Profit per year - $25,152
Annual Rate of Return on invested money - 47% approximately
I have been very happy with it obviously. I checked with the municipality because it classifies as a legal non conforming use of the property. I purchased the property in February, and it took about 1 week to fill all the rooms. I set up a clear set of house rules and guidelines and have screened all the tenants sufficiently, so there have been no issues with tenants so far. I have found that there is a decent population of people that are looking for clean, safe, affordable housing on a month to month agreement.
Anyways, if any of you are like me, it is difficult to grind out a deal in a great market. I found that if I am looking at these properties with a different lens, then the opportunities seem to come available. If I were to rent this house out to an individual family, I would have been hard pressed to get a 9% return. I love to buy, and don't find myself selling properties very often, so I am looking for properties for the long term investment. The monthly cash flow is my goal in this real estate game.
Thanks for taking the time to read