I am a relatively new investor. I’ve done only 2 real estate investing deals in 2014. Both of which were wholesale deals or a deal where they paid me a finder’s fee for bringing them the lead on a house that they were looking for in this certain neighborhood. I made on each of those deals combined $9300. Could have made more but was a new guy I was too scared to negotiate and wanted a “quick” transaction.
So after reading Rich Dad for a second time, I thought perhaps I should try to get a rental so I can have cash flow coming in on a monthly basis. I admit the thought of dealing with tenants at first scared me but I thought I should have least give it a shot.
After searching for 3 months for the perfect deal in the best neighborhood possible – I found it! It was a 2/1 about 1000 sq ft detached home with a nice yard, basement and parking. It was an older property well maintained by one owner who was going to move in with his kids. House needed some minor repairs and I am pretty handy and it was vacant. Paint, new faucet fixtures and new carpet was what I could figure out.
Wait don’t get excited so fast. There is always a catch right? It was selling for $37,900. I had a signature loan with the bank for only $25,000.
Follow me. I had left from my wholesale payouts $5200. So could really only afford $30,200 max and that needed to include closing, taxes, title and everything else they seem to find to add to the HUD like copy fee, lol. If I use my signature loan the payments would be pretty low like 200-400 per month or something like that. So I decided to set an appointment to go check out the place.
I talked with my real estate agent and told her I like this deal but I want to submit an offer for $23,000 and this is what she sent me.
Purchase Price: $25,000
Est. Rent: $550 – $625
Yearly Taxes: $539
Monthly Income and Expenses
Est. Rent $550/mo
Management Fee $55/mo
Net Cash Flow = $367 x 12 (Months) = $4,404 Yearly Net Income
$23,000 (Purchase Price)+ $7,000 (Estimated Rehab) = $30,000 (All in)
$4,404 (Yearly Net Income) / $32,000(All in) = 15% COC
Based on these numbers I needed to bring the price down, raise the rent, and control my rehab cost to make this work. I asked how long this been on the market? Gina told me 3 months since December. People don’t really buy houses here in Kansas City in the winter. It was heading into April. So I told her to submit the offer for $22,500.
The owner countered with $35,000. We countered again for $23,000. No answer. Bid rejected. I was crushed. I drove by the house a week later and saw the owner out spring cleaning the yard.
I stopped to introduce myself and told him about my quest to purchase his property and why. He was so impressed or sympathetic that he invited me in and we struck a deal. He agreed to sell it to me for the max I could afford that included the fix up and closing. I told him I only had $25K to work it. He said no problem he used to own a small trucking fleet and now how it is when you just starting out.
His listing was about to expire so we did not want to wait any longer – we asked the agent if they would take 1% less since we worked out the deal. The tip about asked the agent to take less came from REIClub forum chat room. Well we worked the numbers out so tight that at closing I needed to sign a check for $24,938.72. I wish I took a picture of it.
I spent exactly $2800 to get it ready and I already have it rented out on a 1 year lease for $615! In the next few months I need to think about refinancing it to get a traditional loan or flipping it if the tenant gives me any headaches.
The moral of this story is be persistent, always ask for what you want and hang out with other real estate investors or in the online forums – they always have ideas that you did not even know existed. I'm onto to my next wholesale deal – See Ya!
Kansas City, KS