We Now Own 4 Rental Properties! – Rental Property #4 Numbers Analysis

As I told you guys before, I’m going to give you the actual break down of my current and future rental property purchases.

For property 1, 2 and 3 I give you the month by month break down of income and expenses.

For this go around you get all the numbers starting at purchase price.

Why Am I Doing This?

I have two reasons for doing this. The first reason is that I want to be 100% upfront with you. Many people have aspirations of being landlords, and they usually don’t take the time to run the numbers. I’m not here to sell you a dream. I want you to know exactly what you’re getting into when you decide to get into the residential real estate game.

My second reason is that, it forces me to analyze and review my properties numbers on a monthly sometimes weekly basis. Running the numbers constantly to ensure you’re on track is paramount to success.

How much did it cost you?

Here is the exact cost breakdown fresh from my lawyer.

RENTAL PROPERTY #4 CLOSING STATEMENT

RENTAL PROPERTY #4 CLOSING STATEMENT

 

Rental Property 4 Repair Breakdown

Not one single repair is needed for this property. I purchased it from landlord from the UK who wants to get out. Well, actually it was 4 people from the UK who went in on a cheap property. They got in over their heads and didn’t have the funds nor the expertise to handle the property. MY KIND OF DEAL!!!

Cap Rate!

OK, let’s discuss best case and worst case scenario for cap rates. Oh, you don’t know what cap rate is? Here is a nice definition.

 

Capitalization Rate is the Net Operating Income divided by the Market Value, or rather the Capitalization Rate helps in determining the current market value of a real estate property on the basis of Net Operating Income.

Worst Case Scenario Cap Rate…

Related Article: How I Spend Only 30 Minutes A Month On My Rental Properties and Still Have Positive Cashflow

So, in my worst case scenario, one where my tenants don’t pay their portion of rent, and I have to solely rely on Section 8, the cap rate will be..

Gross Rent = $654(monthly) or $7848 (annually)

Property Management Fee = $65.40 (month) or $784.40 (annually)

Other Expenses = $195 monthly) or $2350 (annually)

NOI = $Gross Rent-All Fees = $4713

Cap Rate = NOI / Purchase Price = $4713 / $19,900 = 23.68%

As you can see, that even in a worst cast scenario we will make a serious return on our investment.

The I Wish Cap Rate….

If my tenants pay their portion and Section 8 pays their share the cap rate will be….

Gross Rent = $825(monthly) or $9,900 (annually)

Property Management Fee = $82.50 (month) or $990 (annually)

Other Expenses = $195 monthly) or $2350 (annually)

NOI = $Gross Rent-All Fees = $6,560

Cap Rate = NOI / Purchase Price = $6,560 / $19,900 = 32.96%

You may be wondering how we make money if the tenant doesn’t pay. Well, our properties house government assistance tenants. Each tenant typically has a portion of their rent paid by the local government.

What’s next?

My property manager calls the local Section 8 office, and they start sending me check immediately. We also start the hunt for rental property #5.

With those kind of returns who needs the stock market!

So what’s keeping you out of the real estate game? Would you invest less in the stock market and focus on real estate if you could duplicate my returns?
 
If you want more information about my deal check out my one on one real estate sessions by clicking this link

0 comments

  • I really like how open you are being with this. As someone who is just starting in real estate it is really interesting to see.

  • No problem Nick. I’ve been honest from the start 🙂

  • Hey Dominique – good purchase! Looks like a nice deal. How are you finding your properties? MLS? Direct Mail? Word of Mouth?

    And was I reading this correctly that you hope your tenants pay their portion of the rent but are okay even if they don’t? It’s not a bad strategy – you wouldn’t wanna spend thousands on an eviction over a small payment.

    Good luck sir!

  • Brandon,

    All of thee above. I get a lot of deals from my network these days. I just happened to say yes to this one. You read that correct. I’m not going to evict a tenant over them not paying their rent, especially if 85% of the rent is covered by the government. However, since I deal with section 8 tenants. I simply won’t let them renew their lease or wait to evict 1 month before the annual section 8 inspection :-).

  • With those kind of returns I would DEFINITELY focus more on real estate investing instead of stock investing. The problem for me is the barrier to entry in my area. There is no way I could purchase a house for that cheap!

  • I live in the Washington, D.C. Area. Home values are ridiculous here, so I invest 700 miles away.

  • Congratulations on procuring your fourth property! Let’s hope you get your wish.

  • Thank you!

  • MLP /

    Seems to good to be true to me… I have a few rental properties and a couple were awesome cupcake deals, but I’ve never seen a single one in any market worth a damn that sold for less than $50k or so. If there were $20k properties cash flowing as you described above without any repairs necessary everyone would be buying right now, shoot sign me up for 5.

    Also “They got in over their heads and didn’t have the funds nor the expertise to handle the property” and “Not one single repair is needed for this property” seems counter intuitive to me.

    Lastly, this is a personal preference but on such small deals cap rate can be misleading. On SFR properties I typically prefer judging by the cash on cash return. But they are just a couple tools among many in the evaluation process.

  • I respect your opinion on the matter, but I do post monthly rental property income/expense reports and even posted the closing statement for this property. Just a heads up all 4 of my properties were purchased between 15-30k. I’m working on number 5 for 20k right now.

  • MLP /

    Politely Sir, thats not an actual HUD-1 settlement statement…

  • HUD 1’s aren’t required for all cash deals.

  • HUD-1 is the settlement statement that is used for most residential closings (called settlements or escrows in different parts of the country).

    HUD stands for the Department of Housing and Urban Development. When Congress enacted the Real Estate Settlement Procedures Act (RESPA) many years ago, it authorized HUD to prepare and implement a uniform settlement statement.

    Recently, this form was updated with the view toward assisting potential homebuyers to fully understand their closing costs, and to be able to shop and compare settlement (escrow) companies.

    The HUD-1 must be used in any transaction where a federally regulated mortgage (deed of trust) is involved. In my case, because I purchased for cash, I don’t need to use that form.

    However, because I the location of my property upstate NY. I use a lawyer for all transactions. I’m sure you can find my specific area of you wanted to find it. 🙂

    FYI.. I’m not being snarky. I like to debate. I’m an ENTJ and since text doesn’t have a tone. I don’t want you to think I’m being a dick.

  • MLP /

    I’m right there with you on the debate tip… I’m pretty sure you can see my email on your end so send me a line when you have a second I’d like to get up with you offline

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