Is it a 2/1 or a 4/2
The Basics of the Deal:
“Is it a 2/1 or a 4/2” was purchased for 41K and it was listed as a 2/1 but in the description it talked about actually being a 4/2 which is not typical and thus warranted further investigation.
Upon our walk through it turned out to be a 4/2. I suspect there was an addition at some point but I couldn’t tell as it was clearly done well. The house was one street over from some railroad tracks but in a nice area of town. The proximity to the railroad tracks meant this was going to become a rental as the owner occupants would likely look elsewhere (This meant less competition)!!!
Expected and Initial Plan:
We initially expected the house to cost less than 8K in make ready as it only needed the basics of paint, carpet, fixtures and a new AC unit. We expected the unit to rent for $950-$1,050.
Actuals:
We ended up spending about 10k on make ready cost. It is important to note that 3K of the expenses came from a surprise you can’t plan for. The water heater gave out and damaged a fair amount of the carpet 30 days after the tenant moved in. So we had to replace the carpet twice (Not Fun).
The house rented very quickly at the top end of range or $1,050 a month. The house was rented by a Section 8 tenant who has been with us since she moved in.
Outside of the water heater surprise we have not had any other issues.
Current Status of Property:
We still own the property and are happy to report that the same tenant that moved in after we purchased it is still in the house and happily paying the rent.
Lessons Learned:
If you have any doubts about the quality or age of the water heater just replace it. The $600 charge is nothing compared to the downside of having to eventually replace the carpet and the unit because of a bad leak. Being cheap can really cost you!!!
In this market some locations are destined to be rentals as the owner occupants will be driven away. Don’t over pay for these properties because there will actually be less competition.
In fact if you are starting out and most interested in long term hold or cash flow you might even want to seek these properties out, because less competition means lower prices and higher expected yields.
Grade the Deal and Why:
We give this house a B as we should not have been so cheap and just replace the darn water heater before we had issues. Learn from our mistake.
Future Plans for Property:
We plan to hold this property for a long time. We may look to exchange our equity into multi families someday but until then we will just keep the cash flow rolling.
In the mean time we will be looking for ways to strip off a small piece of equity via a bank line or private money as we only owe about 22K on the property.
