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. 

[Cara Lonsdale]

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!