Real Estate Rental Property #4 Update (October 16, 2013)

by FI Fighter on October 16, 2013

in Real Estate Updates

IMG_3524

Rental Property #4 is entering the final stages of closing, and I should have the deal wrapped up by the end of the week! All in all, this transaction hasn’t been too difficult, but as always, I can’t wait until closing is complete so I can start collecting rent checks!

New Rate

Because interest rates have cooled off a bit lately, I was able to lock in a pretty good deal at 4.75% fixed rate for 30 years. My original cash flow numbers were calculated using an estimated 5.3%, so I’m pleased to know that my returns will be slightly improved due to the lower rate.

However, one difficulty I encountered during closing was that the appraisal came in lower than expected. The purchase price was $95,000, but the property only appraised for $86,000.

Addendum

I was afraid of this, and this isn’t the first time I’ve come across a low appraisal. After negotiating back in forth with the seller, we were able to agree to the following terms:

  • Purchase price to remain at $95,000
  • Seller will pay for all closing costs (about $2800)
  • Seller will pay for first year’s insurance policy (this was already in original contract)
  • Seller will provide 1 year rent protection guarantee (I will get paid full month’s rent, regardless of any tenant issues, evictions, etc.)
  • Seller will provide 1 year maintenance guarantee (I won’t need to set aside any funds for repairs for Year 1)

True, I’m overpaying for this property. But just like with dividend stocks, I don’t really mind paying market price (or slightly higher) to acquire quality. This provider did a really nice job on the rehab, and has been upfront and open with everything. Hopefully, I’ll be able to establish a good working relationship for future transactions.

Lease Agreement

Also, the property has been leased out to a tenant on a 2 year lease for $1075/month. After running my cash flow numbers, this should amount to about $300/month in passive income. This includes reserves for maintenance and vacancy (20% allocation total), which won’t be needed in Year 1 due to the purchase addendum highlighted above.

I will update the final numbers after the property closes. Hopefully Rental Property #4 will be in the fold by the end of this Friday!

Related Posts :

{ 4 comments… read them below or add one }

1 MartinNo Gravatar October 16, 2013 at 9:25 pm

Those terms are excellent. You are a magician if you made him to sign off of this. He must have been desperate to sell. Congrats!

Reply

2 FI FighterNo Gravatar October 22, 2013 at 6:05 pm

Martin,

Yeah, the seller was willing to negotiate, which was good. I don’t think I scored a great deal though, since I did overpay.

In the end, I feel like it will work out in the long run. I’m more interested in the cash flow numbers, and those work out great. I have to put some more upfront capital, but the cash on cash is still greater than 15% or so.

I’m trying to retire early, so not trying to over-complicate things. Time is really important, so if the numbers work out, I don’t mind overpaying slightly.

Cheers!

Reply

3 MartinNo Gravatar October 18, 2013 at 7:04 pm

Hi there I think would only pay appraisal price no way in hell I would pay over you. I would have to be on drugs to pay extra good luck

Reply

4 FI FighterNo Gravatar October 22, 2013 at 6:08 pm

Martin,

I understand your views. And yes, in this case I am paying over appraisal. However, if I opted to back out instead, I would still be out the inspection fee, appraisal, time, etc.

Honestly, I’m more interested in maxing out my 10 loans and locking down good cash flow properties than anything else. If I have to overpay slightly, I’m ok with that. The passive income numbers still work. I’m confident things will work out in the long run.

Cheers!

Reply

Leave a Comment

 

Previous post:

Next post:

Copyright © 2012 FI Fighter