Rental Number 6 Under Contract

[Linda Weygant]

On July 15, we went under contract on our 6th rental property.  It's a townhouse and was listed for a day when our offer went in.  It's in the same complex where we have two other units - offering on this one was a no brainer for us and we called our agent and had him put an offer in, sight unseen.  All units are the exact same floor plan.

First, a discussion of our other two units in this complex.

The first one was purchased in March 2014 for $114,000. The HOA on it is $179 + $75 for a special assessment (which expires next month). It had original everything from 1974. I think even the original orange shag carpet was there, although it was matted, brown and laying quite flat by the time I bought it. Here is a picture of the original kitchen.

Here is a link to a rental ad for it, with pictures attached:

http://denver.craigslist.org/apa/5100452530.html

The remodel was $30,000 for a brand new kitchen, one complete remodel of a bathroom, one partial remodel (shower only) of a second bathroom, all new carpeting, paint, closet doors and appliances. It rented for $1950 per month and I refinanced it for $156,000 six months later - a classic BRRRR.

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The second unit was purchased in October 2014 for $155,000 and the mortgage company used the appraisal on the first unit as a comp to purchase the second.  Double whammy out of an appraisal fee!  It was pretty much turnkey - no remodel needed.  This one is rented out by the room for a total of $2450/month.

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As you can see, our experience with this floor plan and this complex is that it pretty much poops money for us.  So when I saw this most recent unit come up on the market, I pounced.

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It's been over a year since we purchased the first one and the Denver area market has been super hot.  This particular unit went on the market at $175.  We were one of 12 contracts put in over the weekend and we won it at $187.  You may wonder why the hell we offered so much.

First, a three bedroom unit in good (but not great) condition in this complex just sold for $171,500.   Therefore, I think that $175 was too low for a four bedroom.  I felt that competition would be high and at $187 purchase and $2450 rent (we're going to do this one by the room as well), we're still above a 1% rule.

 Second, this particular complex is under valued, in my opinion.  It is right across the street from a revitalization area.  A movie theater, shopping, restaurants and town center type area is going in across the street and should be opening at the end of next year. A Whole Foods, restaurants and other shopping is already within walking distance.  My personal prediction is that this complex, which is already under valued, will just increase dramatically once the revitalization is complete and the light rail station goes in.  Other areas where light rail has expanded in the last year have already seen an increase in property values.  I could be wrong though.  Only time will tell.

Third, it's tough to find a property in Denver right now that meets a 1% rule.  These are coming in at 1.2% and 1.6% respectively for the first two and this one will come in at 1.3%.  Hmmm..... maybe I need to re-evaluate my statement that 1% rule rentals are tough to find.  I seem to be finding them now, although I was having a very tough time over the winter and spring.

I intend to add to this diary as the deal goes through.  I'll talk about the inspection and any negotiations that come from that.  I'll then also talk about any remodeling that needs to be done and the process we'll go through to get the place rented.

Stay tuned!