Article by Mark Ferguson
Our market is still going crazy with low inventory and high prices, so how am I finding properties? I think my ability to find rentals had been more about my focus than about any new techniques. I decided to focus more on rentals in 2015 and less on flips and so far it is paying off.
I had a big gap between buying rental property 11 and rental property 12; over six months. I bought number 12 in March 2015 and wasted no time buying number 13 a week later. I just got rental property number 14 under contract this week (March 30 to be exact)! It is another great deal and will be a great rental once it is fixed up.
What kind of house is rental property 14?
Rental property number 14 is a single family house with five bedrooms and two bathrooms. The house has a one car attached garage and is a ranch with a finished basement. The home needs a lot of work including paint, carpet, appliances, drywall work, kitchen work and general yard cleanup.
The house will need about $15,000 in work and it should rent for $1,400, possibly $1,500 a month.
How much did I get rental property number 14 for?
I can’t tell you the contract price of the house until it sells, but it was listed for $129,900. I saw the house come up on the MLS on my hot sheets and I had an appointment set up an hour later. After I viewed the house I had my assistant write an offer right away. We negotiated slightly with the seller and got a contract signed that same day before any other offers came in.
To make my offer more attractive to the seller I removed my inspection contingency and I don’t need an appraisal with my portfolio lender. The seller wanted to sell the house quick and I that works great for me.
What is rental property number 14 worth?
I always buy my houses below market value. There are so many advantages to getting house cheap and my rental properties have increased my wealth significantly. This property needs work and they needed to sell quick and that is why it was priced low. Similar houses in the area are selling for over $160,000 when they are in decent condition. Below are some comparable sales I found int he neighborhood.
- Sold the end of January for $160,000 with 4 bedrooms and 2 baths, with a one car garage.
- Sold middle of March for $166,000 with 4 bedrooms and 2 baths, but has a 2 car garage.
- Sold in October for $178,000 with 4 bedrooms and 2 baths, but has a 2 car garage.
I think this property will be a great rental and it is a bonus that it is below market value.
Why should you buy rental properties below market value?
Obviously it is better to buy houses as cheap as you can, but I don’t plan to sell my houses anytime soon. Why is it such an advantage to buy houses for less than they are worth?
- Buying below market value makes my loan to value much lower on houses, which makes my bank happy. I put 20 percent down and after repairs are made my loan will be about 62 percent of the value of the home.
- Buying below market increases my net worth, which makes it easier for me to qualify for new loans.
- Buying below market increases my returns and cash flow. The cheaper I buy a house the more money I can make.
- Buying below market value makes it easier to refinance a property if you ever want to take cash out to buy more properties.
- If you ever get into trouble and have to sell your rentals, it is much easier if you have a lot of equity.
I will give a full write up on this property once it closes with detailed numbers and possible returns. I will also shoot a video of it before and after the repairs are complete. For the future I am still buying rentals and I want to buy at least seven rentals total in 2015. This will be number three and if I can buy a turn-key rental with my IRA I will be up to four and well ahead of my goals!