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!
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.
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.
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!