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Real Estate Rental Property #4 Update (September 04, 2013)

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San Diego was an awesome getaway! I’m back and my batteries are semi-recharged (70%) to take on the rest of this year. During this most recent trip, I visited La Jolla Shores and Coronado Beach for the first time. La Jolla is nice but a bit too over-crowded for my taste. Previously, I had thought that Newport Beach was my favorite beach destination, but Coronado now takes over the top spot! The weather is perfect, the sand is super soft, the beach is very clean and spacious. Coronado has everything I look for and was exactly what I needed for this vacation…

Anyway, I had a lot on my mind even though I was primarily focused on relaxing. Since I now know that I want to retire in the next 1-2 years, I realized that I needed to ramp up my buying cycle to make this all possible. For sure, I knew that I wanted to make a move on Rental Property #4, but when would be a good time to do so?

As you know, I detest the Waiting Game, and will admit that I’ve been anxious to make another move. As I outlined in the previous article, I’m somewhat short on funds to make this happen. But one thing I didn’t factor in was the meteoric rise of Tesla Motors (TSLA). I own 94 shares which are valued at just under $16,000 at the time of this post. Clearly, this is a lot of ammo I can use for another downpayment. Further, I have a ~$7000 bonus due at the end of next week. Perhaps the next purchase could be realized sooner than I had anticipated?

I pondered what to do for a few days… So, as soon as I got back from my break, I sent out an e-mail to some sellers and put a feeler on what inventory was available on the market. I ran the numbers. I negotiated and tried to talk down the price. After going back and forth, I was able to make the numbers work for a property in Indianapolis.

Property Indianapolis
Room 3
Bath 2
Interest 5.30%
Price $95,000.00
Downplayment % 25
Downpayment $23,750.00
Loan $71,250.00
Mortgage $395.65
HOA $12.50
Property Tax $60.00
Insurance $45.00
Landscaping $0.00
Utilities $0.00
Property Manager $107.50
Vacancy $89.58
Maintenance $53.75
Monthly Payment $763.99
Rent $1,075.00
Monthly Net $311.01
Yearly Net $3,732.15
Cash-on-Cash 15.71%
Cap Rate 8.93%

 

In general, I try to be a bit conservative with my numbers, which explains the somewhat high vacancy and maintenance reserve. Still, 15%+ cash-on-cash is a very good return in my book. Not to mention the principal paydown which is not factored into the return calculation. Since the purchase price is “only” $95,000, I only need to come up with a downpayment of $23,750. Closing costs will be paid for by the seller.

With interest rates rising sharply, I know that I want to lock down as many properties as possible. Honestly, this ended up not being a very difficult decision.

I sent back the signed contract and locked down Rental Property #4! It is set to close sometime in mid-October.

This purchase will add ~$300/month to my passive income stream. Based off of my conservative figures, my four rentals will now generate a combined $1474.26/month. I am nearing my original early FI target of $1500/month. I anticipate being at well over $2000/month before I check out for good.

With all that being said, I’m already planning for Rental Property #5. It’s a bit premature to discuss the details right now, but I’m crossing my fingers in hopes of landing another great deal by the end of the year. I’ll have to resort to “creative financing” to purchase (since I’ll be well short on cash), but this deal has the potential to bring in another $600/month.

Things are getting interesting again! 🙂

{ 6 comments… add one }
  • LeighNo Gravatar September 8, 2013, 4:50 pm

    Wow, 5.3% interest??? That is so crazy. That price looks so good that maybe I should move to Indianapolis… Congrats and good luck with closing! It’s really awesome watching your journey, especially with how different it is from mine 🙂 Hope you’ve had a great weekend!

  • FI FighterNo Gravatar September 8, 2013, 7:53 pm

    Leigh,

    Crazy, right? It wasn’t very long ago when we were under 4.0% interest… sigh. Well, from a historical point of view, interest rates are still pretty low at ~5.3%. As long as I can still find deals yielding at 15%, I won’t complain 😉

    Yup, this weekend was great! The 49ers won Week 1… but so did the Seahawks. It’s gonna be a great matchup next weekend in Seattle for first place in the NFC West! I hear the Hawk fans are trying to set a new Guinness World Record for “loudest crowd roar”. Should be a great game!

    Cheers!

  • MartinNo Gravatar September 10, 2013, 10:19 pm

    Nice! You seem to be gaining speed. I hope you get it all done well.

    • FI FighterNo Gravatar September 12, 2013, 7:38 pm

      Martin,

      Yup, full speed ahead!

      Take care!

  • PullingmyselfupNo Gravatar September 25, 2013, 4:55 am

    1: You only have two properties listed on your properties tab.

    2: With different properties in different states I presume you use a property manager? Any concerns about being spread out and not being able to keep an eye on the properties in person?

  • FI FighterNo Gravatar September 25, 2013, 10:14 pm

    Pullingmyselfup,

    1. Yes, I’m behind on the updates. I still need to add Rental #3 to the page 😉

    2. Yes, I outsource the property management to a company for out of state properties. No real concerns with having to keep my eye on them. I just have to do a good job of managing the property managers… easier said than done, but so far so good.

    Cheers!

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