Rental Property (North Carolina)
Home purchase #3
This property I am very excited about. The purchase was completed mid-year in 2015. I expect to rent it mid-year in 2017. So again, like my two other purchases, my family lived in this home for several years before turning it into a rental property.
Like my other properties, in this page of PassiveIncomeDude, I would like to share as many details as possible of this investment. My goal is to be as transparent as possible!
*Purchase Date: Mid 2015
*Purchase Price: ~$299,500
*Layout: ~3000sf, 4 bedrooms, 2.5 bathrooms, two stories
*Finance Details: 30yr fixed, 4.05%
*Amount Financed: ~$238,500, 20% of purchase price
This house is a great home, in a great housing development, that really has blessed my family. There is a community pool less than a 4 minute walk away.
The major mistake I made on this house was the financing. Email me if you're interested in the details, but key takeaway - financing is one of the most important parts of the investment! Otherwise, this house should perform well over time, and I have attempted to minimize the financing damage. I recently wrote an article detailing my financing troubles that can be found here.
Here is a picture of the kitchen to give more perspective on the property. A very nice home, but like my other properties, not way over priced, outdated, or hard to rent. These things are key!
*Note - we changed to a more neutral light fixture. That yellow was rough!
*Loan Balance at Start of Rental Period: ~$230,000
*Estimated Home Value at Start of Rental Period: ~$305,000
*Implied Equity: $85,000
This home is not rented yet, so the equity detail categories are a bit different than my other properties, but the numbers will still be relatively accurate for now. Note I incorporated almost 0% appreciation to the home's value.
The challenge with this property was that it took so much of my own money to secure it as an investment. To get relatively decent (not even great, mind you) financing, I had to put 20% down. This resulted in lots of interest charges and loans from family members as you can see also from my Goals page, which I thankfully didn't have to do for my other properties. Oh well. The house wasn't overpriced and I anticipate some appreciation before I sell, if ever.
In this section I will detail my monthly cash flow each year, and will also proved a number I call 'Total Earnings,' which is essentially the annual sum of my monthly cash flow I received plus the annual sum of the 'mortgage debt' paydown.
I think this number is a better overall measurement and will explain why in the following example: say I pay more towards my mortgage payment each month than what is required. As a result, my monthly cash flow will be lower (and perhaps even negative) if I am putting a lot of extra $ towards my loan balance. But at the same time my mortgage debt paydown number would also be higher. So, given the allocation decisions one can make with the cash flow and mortgage payment amount, I think 'total earnings' is a better representation of which direction your property is 'moving' as an investment. Here are this property's anticipated numbers:
Anticipated Monthly Cash Flow:
Conservative rent estimate w/ property management: $70
Aggressive rent estimate w/ property management: $430
One interesting fact is that I am considering not having a property manager for this property. So if I take a median rent estimate w/ no property management, I expect cash flow of $400 per month! The aggressive estimate puts cash flow over $650.
Stop and consider that. How long would it take to build up a dividend portfolio that generates $650 in cash flow per month? YEARS. The answer to that question for most of us is YEARS. Real estate, however, lets you do it with only $65,000 or so as a down payment.
Now consider the mortgage debt paydown of an additional ~$350 and your total earnings are close to $1000 per month. Incredible.
Looking forward to updating this page when it becomes a rental.
What are your thoughts? I'd love to read your comments below!
Thanks for reading,
Passive Income Dude