House #3

About two weeks ago I walked out of my latest job and about five hours later walked into a real estate office to sign some papers and pickup the deed for my third house. It’s another bank-owned foreclosure in need of lots of rehab. It’s a 3 bedroom, 1 bath single family home built in the 1880′s in a fairly urban area but with a large (for a city-house) fenced in yard and a paved driveway. The neighborhood is so-so, with a mix of other single family homes and a few multi-unit dwellings. There’s city water, sewer and gas service in place.

I’ve ordered replacement windows for the entire house (~$2,500). It’s going to need new flooring throughout, paint, and the bathroom looks like it was designed in WWII. So I’ll be redoing the shower and installing a currently-missing bathroom sink. The good thing is that the roof and siding look to be in fairly good shape. Though there is a front porch that has me a bit worried and I still haven’t decided if I’m going to replace it or try to repair it.

This one should take me 3-4 months to fix up at a leisurely pace. Maybe less if I’m more diligent about it.

I ought to be able to rent it for $900-$1,050/month or so. I tend to keep the rents a bit on the low end so that I can have my pick of tenants and they’re less likely to move out because they found a better deal.

The negotiation for the house was a bit prolonged. When I first checked it out over six weeks ago the asking price was set at over $40k and I had better prospects I wanted to make offers on first. But those didn’t pan out, and about 4 weeks ago the asking price dropped to just over $30k. So I decided to make an offer of $17k.

My real estate agent does all the negotiating for me, which I’m grateful for, because I hate negotiating. I told her my ceiling was $19k. The negotiation went back and forth for four days. My agent would go up a hundred bucks, they would come down two thousand, over and over again until finally they agreed to $18k. I just went about my business not thinking about it until my agent called me 4 days after I made the offer to tell me she had made a deal. She doesn’t update me with every little thing along the way, which I’m grateful for because I really don’t care how she gets there, just tell me the final number.

I’m quite happy with the deal. To get something for less than $20k around here that isn’t a complete tear-down is a real coup. I can definitely keep the repairs under $10k and I’m hoping to keep them somewhere around $7k, counting my own labor as free.

Once this one’s rented out I’ll be bringing in about $1,700/month in gross rents, still with no mortgages to pay on.

Hopefully I can grab up a few more in the coming year while the market’s still low. But we’ll see. I have plenty on my plate for now.

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  1. Posted September 26, 2012 at 10:10 am | Permalink

    Congrats on the new place. Hope we get to see some ‘before’ pictures.

    How do you get your agent to work so hard for you? Most, I fear, would offer your 19k ceiling right away and then try to get you to go higher….

    more commission for them….

  2. Posted September 26, 2012 at 11:15 am | Permalink

    How many properties do you have now?

    I wish I lived in your area. I’d love to give you a hand for I would enjoy helping the rehab.

    Looks to me just 3-4 houses at $1K/month each and you literally would not have to work the rest of your life. That you can now fall back on your law degree, invest the extra earnings, things are looking pretty good.

  3. Posted September 26, 2012 at 11:20 am | Permalink

    How many properties do you have now?

    Woops;) I guess I should read the title.

  4. Posted September 26, 2012 at 3:50 pm | Permalink

    BTW, as you get deeper into this land lording gig, you might find this amusing:

    Reminded me of my own RE days….

  5. Posted September 30, 2012 at 12:44 pm | Permalink

    Sounds like another fun project.

    I’m curious, do you have a special realtor that you work with on these extremely cheap foreclosure properties that need extensive repair?

    I ask because I started down this path, heavily motivated by your success, but my realtor wasn’t able to find anything even remotely what I was looking for (houses in the $20-$30K range). I realize each real estate area is different, but since she wasn’t even close to finding anything under $80K… I just used the realtor we used to buy our own house, and I’m wondering if I should find a specialist.

  6. Posted September 30, 2012 at 10:04 pm | Permalink

    @jlcollinsnh That guy’s a whiner. He had to pick up a telephone while on vacation? Boo hoo. Sure, landlording’s not as easy as a stock portfolio, but if you do it right, it’s thousands of times easier than a 40 hr/week job.

    @mike Just a few more to go and I’ll be all set with real estate and be ready to use the rental income to start buying stocks again.

    @BNL I do seem to have lucked out in that I happen to live right in the middle of a small area with great real estate opportunities. The real estate agent I use is a family friend, so I think that was a big help in her knowing I was a serious buyer when I was first starting out. Now we have a great professional relationship. I do most of the digging myself. I’ve tried auctions and special bank listings, but all my houses so far have just been regular MLS listings. The trick of it is, they come and go FAST. Like, if you don’t have an offer in within a few days of the listing going up, then forget it, there’s already 4 or 5 offers being considered. So I keep a close eye on the MLS when I’m ready to buy, I check the places out a day or two after they’re listed and have an offer in a couple of hours after I’ve looked at it. Or, like this one, they are listed at far too high a price for a while, and then the asking price drops by 30% or more and suddenly the low-ball offers start coming in.

    Try checking out and looking at the “recently sold” listings in your area and filter it so you only see things in your target price range to get an idea of the potential. They may just not be available where you’re looking.

    My realtor also happens to be independently wealthy and just does real estate “for fun”, so I don’t have to worry about her trying to unethically raise her commission. She’s one of my biggest fans.

  7. Posted October 2, 2012 at 6:41 am | Permalink

    Good work on this property acquisition. What are property taxes like on properties like this? I can find similar prices near me, but taxes eat too much into the rental economics.

  8. Posted October 2, 2012 at 10:26 pm | Permalink

    They vary a lot from town to town. But on my three properties it ranges from $1,400 to $1,800.

  9. Posted October 4, 2012 at 5:44 pm | Permalink

    I enjoy reading about your experiences with the rental property. This is something I’m looking at moving on in the very near future. Looked at several this weekend and just returned from another viewing today.

    Any suggestions on what to avoid or any other relative pertinences you could advise a newcomer??

  10. lurker
    Posted October 6, 2012 at 5:10 pm | Permalink

    I just want to invest in you my man. where do I send the check!

  11. Posted October 11, 2012 at 7:07 am | Permalink

    The first time I visited your blog was through a link from BNL who also commented, and I fgorgot about it until another link @jlcollinsnh yesterday. I now have to subscribe. I am so inspired. Its not possible to get such returns in my country/ city. But I still built my real estate portfolio first for 10 years before starting on the stocks. It worked out amazingly for my family. I outsource management and repairs, but I still have to do some work (following trends, marketing and passively searching for new deals). But its work that I love. And far better than a 9-5 job in my opinion.
    Well done to you!