4bd/2.5ba Townhome with little equity, but great rental potential

27 Replies

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $150,000
Cash invested: $28,000

MLS listing with huge rental potential. Not so much equity off the bat, but largest plan in the neighborhood. Some before and after pics attached.

ARV: $196,000

What made you interested in investing in this type of deal?

There wasn't a ton of equity that I could build into this project, but the rental rates and cash flow were too good to pass up.

How did you find this deal and how did you negotiate it?

MLS and through my agent.

How did you finance this deal?

Cash w/refinance.

How did you add value to the deal?

Rehab.

What was the outcome?

Great rental property with solid cash flow each month.

Lessons learned? Challenges?

Not every property may have a lot of equity built in, but the cash flow may make the investment well worth it.

Hi, James looks like a great deal. Numbers reflect $178K invested in cash, is the $1,200.00 your total cash flow? or is there a note, how much over the note payment is your net flow? 

Your deal Sounds great! I'd like to know more about the financing terms. you purchased with cash w/ refinance, 1) where did you raise the cash? 2) And if from a lender, how long did you have to wait to refinance? 4) Since there was little equity what Was LTV?

Thanks for sharing,

Natalie

Drum roll please....What is your cashflow big guy!  That will define how successful this deal is.  Even if it is initially negative if the location location location is good you can still do well with tax consequences and principal equity building.   

Originally posted by @James Letchford :

@Sai Kopacek I pay approximately $1200/mo for mortgage, taxes, and insurance. I just signed a 3yr lease @

 Was there a number supposed to be after the @?

I'm looking to do my first deal soon as well, looking into some duplex's and tri plex's in the Ohio area with the same sort of issue as your deal. Almost no equity even after the rehab, but with a potential rental market of ~$700 per unit. I'd be interested to see what your rental numbers are and see how they compare.

Thanks,

-Edit I should have refreshed the page before I made my comment, sorry. You answered the question way before I posted.

Great job.  Congratulations!  Are there any HOAs that impact your cash flow?  That is the issue I’ve noticed here in Atlanta with respect to townhome purchases.  Your thoughts...

Again, congratulations on this beautiful property.

@Allyn W. - There are some minor HOAs in the development ($13/mo). The Association doesn't really get involved with much (which is good and bad). I have shied away from some developments where the HOAs are very expensive and very involved. They can easily eat into your cash flow and make changes that can really effect your investment.

@Debbie Bryan and @S L Martinez - This unit is in Southern New Jersey, where I grew up. I've developed a solid team there over the last 2-3yrs of contractors, quasi-property management, and realtors. The purchase prices and rents in the area I invest are good for where I'm at this stage of my business.

@Felipe Cortinas - As you may have seen, the debt service (mortgage, interest, taxes, and insurance) is approximately $1200/mo. I just signed a three-year lease for $1900/mo. 

The purpose of this post was to share with everyone on BP that I've always been wrapped up on how much equity I could squeeze out of the purchase price. (Don't get me wrong, I absolutely love and will always love more equity on my purchases.) This property, out of circumstance, ended up not having as much % equity as my other properties, but still cash flows nicely. By really focusing on solely cash flow, I was able to make a good investment.

To your question/point:  I'm currently looking in some areas that have $700-850/mo rents per unit, as well. These properties also won't have a crazy amount of equity built in, but solid cash flow each month/year. I'll plan on improving them, little by little, driving up rents and value of the property.

@Bob Wolf - Thank you. The property is performing pretty well. I put approximately $700 in the bank each month after debt service and let it sit for CapEx, rainy days, and/or future investments. Although I don't pay traditional management fees, I always factor them into my numbers when purchasing a property.

@Natalie Moore - Fantastic questions. 1) I used my own cash (HELOC) to purchase this property and improve it. 2) If you do it this way, you can immediately re-finance with a traditional mortgage at 75-80% LTV. I like 75% because you can get better rates and it brings down how much you're leveraged. *** The most beautiful part about all of this is: If your property appraises for higher than what you expected and/or have into the property @ 75% LTV, you can actual cash out money and have little to no money into the investment. I highly recommend you sending a DM to @Upen Patel . He helps me a ton with my loan products.

@Derrick L.  and @Oleksandr Ivanovskiy  and @Rachel Porter - Best of luck to you all.

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