I missed the foreclosure train.
Prices are too high to get a good deal that will cashflow.
Mortgage rates are so low, who’s still renting?
Those are all statements/questions I get asked or hear on a regular basis. Real estate investors, new and experienced alike seem to have a the preconceived notion that rental houses (at a decent price) are hard to find these days. This article will hopefully debunk that idea.
Day in and day out I speak with fellow active investors who are hunting rental houses. Actually, just las week I had a very successful landlord confide to me that he was able to “pick one up off the MLS” in his area for $11,000! Now this is not in a war zone, it’s in southern Oakland County and will rent for around $700 per month. Yes it needed work he told me, but less that $7,500 in repairs was his estimate.
Let’s do some quick numbers on this one;
$8,400 Annual Rent
$1,400 Property Tax
$600 (liberal) Hazard Insurance
$6,400 in cashflow per year
Let’s take out $1,400 (2 months rent) for vacancy and repairs. That still leaves the investor with $5,000 annual income on a less than $20,000 investment. A 25% cash on cash return! Another way to look at it is it will be 100% paid off in less than 4 years if you paid cash and even closer to 3 years if you don’t have any vacancies.
Ok, so not everyone has $20,000 cash to get a deal like this going. Let’s take a look at the numbers even if you were to find a backer (private lender) to fund this deal.
Find a private lender to fund your purchase and rehab;
10% Interest Rate
5 Year Term
$425 Monthly Payment on Loan
$160 Monthly Payment for Taxes & Insurance
$115 Cashflow (but lets erase this figure to account for vacancy and repairs)
With these calculations you will have this house PAID OFF in exactly 5 years. At which time you’ll have an asset worth at least $20,000 that’s cash flowing $5000 annually. Again a 25% cash on cash return. At only a $20,000 initial investment, how many houses like this would it take for you to build a nice little portfolio?
If you could acquire just 1 per year over the next 5 years you’d have a $2,500 per month paycheck coming in with $100,000 (that’s if they don’t go up $1 in value!) in paid off houses.
Since I’m a math geek let’s get crazy and assume you were able to buy just 2 houses like this per year over the next 5 years. At the end of the rainbow your pot of gold would look like this;
$200,000 In Free & Clear Real Estate (if it doesn’t ever go up in value)
Takeaway: It doesn’t matter if you’re in an up or down market. Opportunities like this are out there quite literally everyday. The availability to find private lenders is even more abundant. So close your laptop or shut off your phone and go Make It Happen!