Breakdown of a $30k Rental Purchase: From Offer to Closing [With Pics & Numbers!]

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Theory can kill you when it comes to investing in real estate. It’s all too easy for investors to get caught up in what they could do, what they dream of doing down the road, and even in education. So what does it take to get out there and make some money now?

The top excuse of virtually all entrepreneurs, business owners, and investors is lack of money. All too often that just enables them to justify not taking action on the important things that will give them the cash they crave.

Dueling it out with the world’s ultra-wealthy to see who can pay the most money for an apartment building in Los Angeles, CA might sound fun. However, you can also get started on the other end of the spectrum by making some good returns on homes that cost less than $40,000 — if you start moving today. In the future, you can always restructure or expand by venturing into other sectors, such as multifamily. The key is to simply get started.

How am I currently doing it?

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Marketing & Making Offers

If you make zero offers, you have zero chance of getting a deal today.

I tell people that you have to take a lot of action to get deals. It’s a numbers game. You really have to sift through a lot of subpar listings to find the good ones. My partner and I send anywhere between 50-100 offers on listed properties EACH WEEK. Yes, we have the help of a virtual assistant! We also speed up and streamline this process by always making sure to put a 7-day inspection period as a contingency in the contract.

Related: Case Study: Why $30k Real Estate CAN Be Profitable [With Pictures & Numbers!]

The property at 315 W. 39th Street was recently listed for $25k on the Multiple Listing Service. The seller priced this property to sell from the very start. We offered $14k.

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Due Diligence

This property is located right around the corner from our office. So we were very familiar with the location. There is a well-known college close by (Butler University), as well as a park being revitalized. I recommend being in the know of where the city plans on putting investment dollars; this will allow for some great appreciation upside. We got right out there and took a look at the property after the offer was accepted. Turns out that after doing a property walkthrough to verify our rehab numbers, we felt comfortable with our purchase price. In pulling the rent comps, we conservatively priced the rent at $695. I prefer to price rental houses to where they do not sit on the market very long.

Negotiation

The seller on this deal was motivated. When the house was originally listed, it was priced to sell at $25k. Of course, our offer came in much lower at $14k. Thankfully, this was a situation where there wasn’t much going back and forth, as the seller wanted out. The seller did originally counter our $14k offer, but after we simply explained that due to the current condition of the home, we could only purchase it for $14k, the seller decided to accept.

Renovations

The ARV on this house is conservatively $60k. We put roughly $15k into the house with all of the updating. All in, we were at approximately $30k (50% of the value). Since we do a lot of volume in our market, we have contractors who we trust that prioritize our business, can get in and out fast, and turn properties around quickly (and with good quality). Building strong relationships with contractors is key to this business. Here is a link to the budget.

Before

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After

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Leasing

At the time of writing this, we are currently marketing the home for rent and expect to have the property rented within 14 days of going on the market.

Closing

This was an all-cash purchase, so the closing was very swift and simple. At just $30k all in, this is the type of deal many investors could also do with their own current cash on hand, 401Ks, or with a credit card or line of working capital. Even those who don’t have access to that type of cash can certainly find a few friends to partner up with or take advantage of some form of syndication, which gives them a share of the deal.

The Numbers

$30,000 All In (Rehab/Holding Costs + Purchase)

$3,849 Net Rental Income Per Year (See Below for Expense Breakdown)

= 12.8% Cash on Cash Return

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Due to acquiring the property at such a low price, we plan to get the property taxes appealed, which will further increase the returns.

Related: The $30k Rental Property: How to Finance & Profit From Cheap Real Estate

Summary

It can be a lot faster to get results in real estate if you focus on what you can afford to do and then just get out there to make offers, drive properties, and stake those rental signs on a daily basis.

Investors: What rental purchases have you made lately? Any questions about the process described above?

Leave your comments below!

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record

96 Comments

    • Sterling White

      Great questions David.

      In the above numbers 25% is allocated for maintenance & vacancy. During the walk-through the ac unit was the big ticket item that was determined to be older & was replaced.

      There is a link above that includes the budget to contractor in which you will see the additional updates done to the property.

      Hope that answers your questions

    • Michael Logan

      Thank you for this Sterling! My wife and I just did a similar first deal and I see how detailed our rehab list should have been for the contractor (we have some additional charges because of our lack of detail).

  1. Only $15,000 to rehab? In my town, $15K will get you maybe half a kitchen. “Due to current condition” implies a fixer. In my town, it will cost around $150,000 to rehab a fixer, so I would like to see a break-out of your materials and labor costs.

    Compared to the ARV, $25k seems like a more than reasonable list price. What was the problem that the seller was willing to accept only $14,000?

    • Andre Palumbo

      He bought the property for 14k. He probably didn’t put a new kitchen in. A little sanding and painting/staining can greatly improve the look of cabinets and floors and can save tens of thousands. Spending 150k on a rehab of a house that was 14k would be a extreme over improvement and loss of all your money

      • My point is how is it even possible to do a FULL rehab for only $15,000, regardless of the original acquisition cost? As I said, in my town, $15K will pay for maybe half a new kitchen.

        • Randy E.

          I guess the two biggest differences is 1) your town and his town are two very different areas when it comes to price. 2) What you aim for in finish level and what he aims for are two different things. Putting a $30K kitchen reno in a $695 rental would be the height of irresponsibility.

          In my experience, in my area, with the relationships I have with my contractors, and in the type of properties I buy, $15K seems very reasonable.

          One other difference may be that the original poster’s use of the term “full rehab” and your use of the same term may have two different meanings. I think you probably imagine a full house gut with all new kitchen and bathrooms, new flooring, new paint, new roof, new systems, etc. From reading the article, I think the original poster meant “full” as in every room in the house needed attention and freshening up, but not that every room needed a complete redo.

          Still, I’ve done new electrical, new plumbing, new flooring, new paint, and more for $15 or less. It can be done.

        • I guess it is still not clear to me. I am not talking about high end finishes or trendy appliances. I am talking about durable good quality (which should be the minimum standard, not the cheapy stuff so often seen in a so-called remodel). I am also not talking about gutting the house, but I am talking about a house where every room needs serious attention, not just paint and new carpets. In my town, $15,000 will get you a cosmetic job and that is about all. So I still want to know what accounts for the huge difference.

          It is not that contractors pay their employees more. There was such a row about the low pay in my town that the city made a regulation, that at least for city jobs, contractors must pay their workers at least $15/hour. The materials from your big box and my big box are the same so that cannot account for it. It cannot possibly take workers in my town considerably longer to complete a project than in other places.

          The difference may be what some of you have alluded to. No one in the right mind is going to pay more than whatever yields ARV. I wonder if contractors in my town bid according to ARV. The numbers in my town are comparable to some of BP’s case studies if you multiply every by 10. Sounds like a lot of profit for contractors here because materials and labor certainly do not account for it.

        • Sina Simingalam

          If you look at the pictures, you can see how much of a change there is. The author even gave a full breakdown of repairs. Go look at that and determine what your costs would be in your area. I doubt it’d be anything close to 150K.

        • Brandon Griffin

          Just looking at the kitchen. It was all sweat, paint and a couple rolls of linoleum. They probably got out of the kitchen for a few hundred bucks.

        • I did look at the pictures. I agree the “rehab” looks mostly cosmetic, which is exactly what $15,000 would get you in my town. However, Sterling says he justified cutting $11,000 off a “priced to sell” list price of $25,000 because of the “current condition” of the house. He implies that the discount is justified because the condition is so poor that it will require significantly more than cosmetics to rehab it, and therefore even the “priced to sell” $25,000 is too high relative to ARV. Clearly, this was not true. Since rehabbers are advised to run the numbers assuming a 20% return, which in this case would be an all-in amount $48,000, it seems the list price was truly priced to sell. I would have paid the list price, or at least the counter offer, rather than take undue advantage of what is apparently an extremely distressed seller. $11,000 is not much, but probably represents a real loss to the seller, while being mostly a trophy for “winning” the negotiation to the buyer.

          If the seller is not personally distressed, maybe there is some hidden expensive problem that the seller knows about and will come to light sooner or later, making the original list price not really priced to sell and would account for the quick capitulation.

        • What is your town Katie?
          Can you buy houses for 15-25k?
          I can where I live and rent for 850 too. Jackson, Ms , so much better when we say where we live. Please don’t tell us you live in Manhattan.

        • What is your point? Are you suggesting that (for example) a $5000 job should cost $50,000 simply because the house cost $250,000 instead of $25,000?

  2. Lennon Lee

    Thanks for sharing. You’ve done a great job at explaining in simple terms and simple numbers the whole process.
    The exact numbers and motivation from the seller are not relevant (at least to me). Being a wannabe investor, and understanding that each property and each transaction is different, this “case study” was super helpful.

    • In this case, it would be helpful to know why the seller was willing to take such a big discount on a house that was already “priced to sell.” Is there some expensive problem that will come to light after a tenant moves in? If the house was already a good deal at the price, I would have given the seller his asking price, as opposed to taking undue advantage of the seller’s distress, whatever the reason.

        • Rob Cook

          Agreed Zach. As long as a buyer does his due diligence, the risks of big surprises are reduced sufficiently to enable moving forward. Only guarantees are 1/2% in CDs. No risk, no reward. And being too cautious will let others swoop in and “steal” the deal right out from under your nose while you obsess on all the possibilities that could go wrong. Analysis Paralysis.

      • Dumitru Anton

        I think Lennon is saying he is in learning-mode, not action-mode yet.

        congrats on the jobs, looks really nice.

        @ Sterling White, since you know your market, a particular question: since your neighborhood is in the earlier faze of “up and coming”, did you investigate rentals (geared to medical professionals) near a major hospital/clinic?
        just curious…

        • Sterling White

          Thank you for the clearing that up Dumitru. Interesting choice of words by Lennon.

          That is a great question & I did not dig into investigating rentals (geared to medical professionals). I am sure there are some medical professional that live within the area.

        • Dumitru Anton

          @Sterling White,
          Please then add teachers, firefighters and workers for the city to your list.
          They may be required to live within X number of miles from location served and usually bring stability/security and neighborhoods up.
          Also may qualify for additional first time buyers incentives which gives you another exit strategy.

    • Jason Stratman

      It’s obviously all relative and based on an individuals outlook… but personally I would look at it compared to the stock market, where I would say the majority of people primarily invest. It’s very common for people to have at least $30,000 invested in the stock market, which historically has returns at 6-7%. The cash on cash return for this property is 45-50% better than historical stock market returns, so I would say it’s worth it.

      • Remember, that 6-7% historical return assumes a beginning principal left to ride for about 120 years. No individual investor does that. It also assumes no taxes or fees. That is why every study comparing the two finds individual returns to be a fraction of historical market returns. So the return on this property is far, far better than individual stock market returns.

  3. Thanks for sharing the excellent case study! One question. You mentioned that you had offered 14k, got it accepted, and then afterwards you walked the property to check your rehab estimates. So how did you come up with your initial rehab estimate before even visiting? Was it just simply by looking at pictures? Do you include inspection contingencies to give yourself an out?

    • Sterling White

      That is correct OB.

      1) We send out hundreds of offers on listed properties so fairly difficult to physically walk-through each one. So prior till placing submitting an offer the pictures are looked at to determine rehab number.

      2) When the taxes were entered into the spreadsheet originally there was a mishap, which once corrected also led to renegotiating the purchase price.

      3) Yes in every one of these offers there is a 7 day inspection period contingency

  4. Curt Smith

    thanks Sterling For all of the great content you’re producing you’re doing about a Blog a week it seems

    we moved to buying under $30,000 houses as well in the Southeast specifically Georgia we buy double wide mobile homes on their own land it’s not in parks for all in 35k or less and we get $1,000 a month but we only do rent-to-own to up the quality of tenant and then we offer seller financing after 12 months to appeal to the move up or aspirational renter.

    Doing double wides rent to own is a great business model.

    • Sterling White

      Curt,

      I shoot for 2-3 pieces of content per week, but looks like I need to step things up. Thank you for the kind words Curt. Creating as much value as I can.

      There has been quite a bit of buzz here lately about mobile park home investing. How has the experience been for you?

      • Rob Cook

        Keep in mind there will be no secondary market financing available on any type mobile home (personal property) or the land it is on either. So relegated to private financing or cash deals. STILL a great business opportunity in them. Way to go Curt!

  5. Michael Logan

    Thank you for this Sterling! My wife and I just did a similar first deal and I see how detailed our rehab list should have been for the contractor (we have some additional charges because of our lack of detail).

  6. Patrick Devlin

    Great case study, thank you!

    Now it’s time to finance it and leverage your money. For easy math, let’s say you take a loan on 50% of the ARV at 6%…You’ll pay 6% on $30k ($100 per month) dropping your cash flow to $220, but then you take your $30k investment back out and go do this again.

    Mathematically, you’d be earning $220 per month on a $0 investment. Calculate that rate of return.

  7. Nathan Brooks

    Haters gonna hate! All good though Sterling … great find, great deal, great looking rehab for what you were doing here … everything is relative. As long as you did the seller right, your contractor/rehab right, and set the tenant up with a nice rental … it’s a win.

    Great job, great post, now go find another 100 of those babies!

  8. Kevin Fox

    Being in San Diego, it still blows my mind every time I think about a decent size, rentable property selling for $30K.

    I mean, I have clients pay more than that in closing costs fairly regularly. I’ve always been curious about what commission agents are being paid on properties like those. I can’t imaging they’d only take 3% ($900) for a deal like this, but I really have no insight. Anyone know?

    • As a fellow Californian, I see it from the other way. Why on earth do we have to pay 6% (the standard commission, 1.5% for sellers broker, 1.5% for sellers agent, same split for buyers broker and agent. If there is no buyer’s agent, the seller’s broker and agent keeps 6%), on a $700,000 fixer? That’s a $10,500 pay day for each party, and the buyer’s agent did nothing but unlock the front door. Honestly, maybe the cheaper house deserves a relatively bigger commission because it probably takes more work to sell it.

  9. Marcia Dabrowski

    Great post Sterling. Regarding refinancing to get your cash out of the property… We have some $30,000 properties and have found it difficult to find banks/lenders willing to refinance properties in this price range. Do you or any BP members have recommendations or referrals for refi lenders?

  10. Daniel Roberts

    This is a great article. I especially like the breakdown, spreadsheet and pics. Great to see a real project, not hypotheticals on paper.

    I’ve done about 8 of these in South Carolina in the past 3 years. Great return for the investment. We just finished one that was purchased for $22,000, invested $10,000 and rented last week @ $650. Very similar to your end numbers!

    Thanks for sharing!
    Daniel / Arthur Investments, LLC

  11. Scott Wang

    Hey Sterling, do you have a minimum cash-on-cash return that you aim for? Here in central/rural Wisconsin I have trouble finding single-family properties that will return more than 8%. A $40k house around here would rent for about $500.

    With an 8% target, I find a couple options here and there, but not very much that stands out.

    -Scott

  12. Sterling, Thanks for the post. Can you tell me a little about how you use a VA to write so many offers. I’m curious about how you show proof of funds.

    Thanks again, Tim.

    • Sterling White

      I have a screenshot of the operating bank account with the funds to purchase the property and the VA fills in the actual details of the contract i.e. purchase price, contingency period, property address

      Hope that answers your questions

    • I have a similar question. Here in California, if the property is not FSBO, most sellers agents will not present an offer NOT written on the standard California Association of Realtors form and signed by an agent including the agent’s code number. If FSBO or not on the MLS, then I can write my own offer.

      Also in California, “offer” is a misnomer. The CAR form is actually a purchase agreement. If the “offer” is accepted, it instantly turns into a contract. If you have too many of them out there at once, you take the chance the more than one acceptance at a time will put you in a financially untenable situation.

  13. Matt Pagano

    Great article. I’m in the process of doing almost the same deal on my second investment property. My deal total purchase was $24,500 and my rehab about $10,000. Comps in the area around $50,000 to $60,000 and my expected rent is $700 – $800.
    Rehab is such an ambiguous word, for my situation it means flooring and paint and then mainly cleaning things up such as new closet doors, light fixtures,paint etc. No major purchases in the rehab such as a furnace or A/C unit.
    This is my first cash purchase and has me a little nervous, but my numbers look good and I hope in 6 months to do a cash out refi.
    Thank you again for a great article.

  14. This is a great article with a lot of information and suggestions in the comments. My husband and I have been doing research to buy our first property for about a year now. The budget and reno breakdown is great! Wishing you much success!

  15. Great article as usual Sterling. Thanks for sharing the numbers and breakdown. I am surprised you pulled out the tiles from the bathroom and replaced with vinyl. Some of the upgrades seem a bit much for $695 rent. Is this is a 2 bed by any chance?

    BTW, how did your world record go, noticed you took it out of your profile 🙂

  16. Julie Rogers

    Nice article!
    Great find, and rehab.
    No way I can find a house for that price, but I am able to rehab for around $10,000. I do the work myself, which saves a lot. Have not used a contractor yet, and I do much better work than they do.
    Some things you have to get a pro in for, but in the area I purchase, they are very honest and reasonable. On my second home now.

  17. Thank you Sterling for sharing – one key I find helpful is not to over rehab. Knowing your market is key in knowing how much rehab to put into a real estate investment. Sometimes just paint and new carpet will do other times you need to update countertops and fixtures. Building a good rapport with contractors is also essential!

  18. Gareth Mahon

    Great post Sterling! Thank you for sharing the case study with us.

    I love detail you’ve gone into. It clarifies the workings of the strategy.

    Is this kind of deal refinancable after a suitable period of the tenant settling in?

    Thanks
    Gareth

  19. Steven Leigh

    Oh man, thank you so much Sterling for all this great detail!

    This is what is missing from so much of the Investing info out there, actual numbers, photos, and details!

    Question for you:
    When you’re making so many offers each week, especially MLS listings, do you have a realtor on staff or do you just have a realtor willing to do this many offers?

    Also, for listings not on MLS, how do you generally make offers? Over the phone? Send by email? What’s the process like?

  20. Thanks for the article, Sterling.

    Just wondering how you tax federal and state income tax into your decision-making calculus.
    As income tax rates will generally be greater than long term cap gains treatment you would get if you invested your $30K in securities, for example, it seems like tax treatment should be a fairly important consideration in your analysis. Granted ,with the 12+% annual return you’re getting on this property, seems like your in a pretty good spot even even taking into account that your state + federal income tax rate is likely substantially greater than the long term cap gains rate. Would still appreciate hearing your thoughts more generally.

    Thanks!

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