Deal Number 3: Buy and Hold

6 Replies

Investment Info:

Single-family residence buy & hold investment in Grand Rapids.

Purchase price: $145,000
Cash invested: $41,000

My wife and I closed on our 3rd rental property in December, 2020 after about 3 months of searching and offering on multiple properties in the Grand Rapids area. Despite the hot market, we were able to find a property that provides just over 9% cash-on-cash return, after accounting for future expenses and vacancies. We decided to use conventional financing due to the low interest rates, putting down 25% to get a 3.125% interest rate.

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

We have 2 other single family properties in our portfolio that have performed quite nicely. Single family properties continue to be extremely desirable to both renters and homeowners, providing cashflow while remaining relatively easy to offload if the need arises.

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

I found this deal after a previous offer had fallen through due to the buyer second-guessing himself. After running the numbers, I made a quick offer, and only asked for $2,000 in seller concessions to assist with the closing costs.

How did you finance this deal?

I utilized a conventional 30-year mortgage with 25% down.

How did you add value to the deal?

After closing, I replaced the roof prior to listing the property on the rental markets.

What was the outcome?

The property is scheduled for move in and will rent at a rate that provides approximately $360/mo of pure cash flow.

Lessons learned? Challenges?

The Grand Rapids rental market in the winter is significantly slower than the summer, adding to my initial vacancy expense to the tune of $50/day.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

My agent, Jake Thomas, continues to be responsive and is a valuable source of pocket listings and investor specific advice and experience.

Thanks @Evan DeVisser ! I am looking to add another property in 2021 (either SFR or small multi). Currently, I am consuming as much literature as possible on multi-family properties to build my knowledge base.

Congrats on your deal, but I have a few questions.

I'm not going to post the address of that house to respect your privacy, but-

$1470/mo rent looks good for your purchase price and isn't out of whack for the market. But it's a 121 year old house that was bought by a flipping company in 2015 for 36k. They claim they take pride in restoring homes in Western MI, so I don't understand why you had to replace the roof after their renovation. 

Didn't that make your spidey senses tingle a bit? You are in San Diego, yes? How did you conduct your due diligence on the inspection of this house? Despite claiming it was renovated, you did have to pay for a new roof. How did you vet that there wasn't any other problems, just beneath a fresh coat of paint?

David - Great questions. I hired a very reputable home inspector to take a look at the mechanicals, wiring, foundation, and other structural components to ensure that the building itself was sound. An old house doesn't necessarily mean a dilapidated house. 

I made my offer knowing that it was going to take a new roof, and even with that cost built in the numbers worked. That is a function of the market being significantly more favorable to cashflow than San Diego. I understand that the appreciation rates are lower, but I am not building my models to chase appreciation. 

The property had been listed for a number of months, with the price slowly ticking down towards what I believed to be a favorable purchase price. The original listing was closer to $175,000, which would not have made sense at all based on the location and necessity for a new roof. However, at essentially $143,000 (after seller concessions), a new roof would still allow for an acceptable cash-on-cash return. 

Originally posted by @David Kramer :

Thanks Evan DeVisser! I am looking to add another property in 2021 (either SFR or small multi). Currently, I am consuming as much literature as possible on multi-family properties to build my knowledge base.

 That is awesome David. Small multi is the place to be. Keep it up my friend.  

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