​My latest purchase - Anatomy of a Deal

[Douglas Skipworth]

Hi, BP.

I just wanted to share my latest deal as an encouragement that good things do happen if you constantly look for them. (This is very similar to how I bought my first house 8+ years ago.)

A few weeks ago, a closing attorney friend of ours called us because he knows we buy rental houses. One of his clients was looking to unload a 1,200 sqft, 4-bedroom, 1-bathroom house in a B neighborhood in Memphis.

We calculated the rental rate based on comps in the neighborhood (e.g., calling For Rent signs, looking on HotPads, Zillow, and Trulia, and reviewing our own internal database of comparable rentals). The rate looks to be $800-$850.

The seller threw out a price of $35,000.

We live the by mantra, "Your price, our terms. Our price, your terms.", which means to pay the seller's asking price we want to define the terms. If the seller wants to define the terms (for example, all cash), then we want to set the price.

In this case, we asked if the owner would seller finance the property to us and, as happens every now and then when we ask, he said, "Yes."

So we agreed to his price of $35,000 and he agreed to our terms, which was financing the property to us for 3 years at 4% on a 15-year amortization ($258 monthly payment).

We did a walk through to determine the repairs needed. Conservatively, we came up with $4,000 worth of repairs.

Our closing costs were approximately $750.

All in, we're at $40,000 for a $800 rental (that's the low end, but we always use the conservative number in our projections) and we'll refinance the $30,000 outstanding principal ($35k amortized for 3 years) with a local lender when the note comes due in 36 months.

We don't get opportunities like this every day, but if we can make a deal like this happen, then you can to.  Just don't settle until you do.

Summary

Purchase Price $35,000

Closing Costs: $750

Repair Costs: $4,000

All In: $39,750

Monthly Rent: $800

Vacancy (10% estimate): -$80

Net Rent: $720

Taxes: -$110

Insurance: -$25

Maintenance (estimate): -$100

Mgmt Fee: -$72

Principal & Interest: -$258

Monthly Income: $155

Our plan is to hold the $150 monthly net positive cash flow in reserve for major repairs over the next 15 years.

At that point, the $250 mortgage payment will be finished and the $3,000 per year excess cash flow can be used as a down payment each year on a similar deal!

Someone once told me, "Don't wait to buy real estate. Buy real estate and wait!"