As you guys know, I invest by buying cheap properties, fixing them up by hiring Cincinnati roof repair companies, decorators, etc., and renting them out for a profit. If you missed it, I purchased rental #5 back last December. It’s currently rented and had my quickest rental experience ever; the property was rented the day after closing, I had deposit and first months rent in hand and lease signed. You can find that posting here.
Now let’s welcome rental property #6 and my largest ever Cash-On-Cash return of over 30%! Yes, 30%, I’ll show you how.
One of my goals for 2019 is to purchase two rentals. I just closed on this rental about a month ago and it’s already rented. I had planned on asking $1400/mo rent and I had an insurance company call and offer me $2000/month rent for a 3+ month lease because a tree fell on their client’s house. I decided to take the deal. So it’s an amazing return but it’s short-lived. However, I still have great cash flow at my normal rent.
Basically what my goal with these properties is to get a COC (cash-on-cash) return of at least 10%. This can be difficult to do and has a lot of factors involved but essentially that means if I spend $50,000 to purchase a property, I need to profit 10% or $5,000 on it that year. I posted how to calculate it in that link above.
A few other criteria I look for are 3+ bedrooms, 2+ baths, good neighborhood (this is key, Location! Location! Location!), single story, brick home, and meets the 1% rule. The 1% rule basically means that the rent should be at least 1% of the purchase price. So if I paid $100,000 for a property, I should be able to rent it for $1,000. This is a simple rule of thumb for a quick screen.
Without further ado:
The House: 3/2, 1400 sq ft.
Purchase Price: $135,100
Down Payment (25%) – $33,775
Closing Costs – $5,600
Total Cash Costs – $39,375
Rent/month – $1400
Expenses/month – $989.48
Cash on Cash return (before m/v) – 18.91%
Cash on Cash Return – 12.51% (current return at $2000 rent is 30.8%)
Here are the numbers:
Appraised Value: $135,000
Principal Balance: $101,325
Total Equity: $33,675.00
Hazard Insurance: 68.42
P&I (4.875%): 536.22
Property Taxes: 174.83
Expenses – $779.47
Estimated Vacancy & Maintenance (15%): $210
Total Expenses – $989.47
Current Rent: $2000 (Leased until 09/03/19)
Monthly Profit – $1010.53
I rented the property the first two days I had it on the market. It was already in great condition and for once I didn’t have to do a single update save a loose gate that I fixed myself. Even after this short-term lease, I plan to get $1400/mo and will have well over a 12% COC return.
All properties but 1 are fully rented. It’s the only property I usually have trouble with, it’s in a small town and the rent is high for the average income there. I’m hoping to have it rented shortly. After bad luck with the previous tenants I’m having everyone fill out a full online application. I’ve also got another offer on a house in a great location, wish me luck.
TOTAL Monthly Net Profits on all rentals:
#1 – 302.81 (leased through 06/30/19)
#2 – -600 (tenant evicted June 2019 and vacant)
#3 – 510.13 (leased A through 04/3021 & leased B through 02/29/20)
#4 – 238.91 (leased through 05/31/19)
#5 – 348.69 (leased through 12/31/19)
#6 – 1010.53 (leased through 09/03/19)
I keep track of my rental property cash flows on my real estate page here: https://allaboutinterest.com/real-estate