New HUD House 37% ROI

[Derrick E.]

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.