Updated about 8 years ago on . Most recent reply
New HUD House 37% ROI
I am closing on a new house on Tuesday. It was a FSBO that I found on CL. Owner was older and very hesitant to meet with people so I got lucky as the price was awesome. This is the first time I have never negotiated on a price (this is my 5th house.)
2BR/1BA (Around 700 square feet) with a double lot fenced in. It's about 3 blocks from some major redevelopment that also connects to the largest hospital in the region. It's about 7 blocks from the city park which is really nice. My immediate area is decent, but as I pointed out, the surrounding areas are really nice.
I am paying $7,000 cash for the house AND it comes with a long term tenant who has lived there for 3 years and wants to stay. Current rent is only $441/month and HUD pays 100% of the rent. I'm going to raise it to at least $450 in 3 months when the current lease is up.
$441 x 12 months is $5,292/year. Using the 50% rule (I'll give exact numbers in a minute) leaves $2,646/year in profit.
$2,646/$7,000= 37.8% ROI
I'm no where near the 50% rule. I manage my own properties, I don't have a mortgage, and I do most repairs myself, and our taxes are pretty cheap compared to most other places. I am closer to 35%, but still use the 50% rule because I don't plan to manage all of my properties for forever.
Using 35% my actual ROI is going to be much higher. $3,439/$7,000= 49.1% ROI.
All I have to say is I can't wait to close this sucker on Tuesday and collect my first rent payment on the 1st of Jan. Great way to start the year, especially since I already have another $7,000 house that I am cleaning out and renovating to have rented by the 1st of Feb.
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You should be able to collect rent for a prorated December as well! Check your contract. It should provide for rents to be prorated and paid out accordingly at COE.
Where can you find a house for $7K? Wow. Sign me up. You can't build a house for that. Crazy.
One note on your raising the rents. Just make sure that HUD (I assume you are referring to the section 8 program) will allow for the higher rent. They usually have caps on how much you can charge the tenant participating in the program. There may be a TON of room to increase it, but you just have to check. THere will most likely be a process for doing this through HUD.
Congratulations!