60k House, 15k in Repairs, $1750 in Monthly Rent

[Shiloh Lundahl]

Yesterday we just signed a 1-year lease with a tenant for $1750 a month. We purchased the property 3 months ago. We found it on Zillow listed for 50k. The property is 3.5 acres, has a well, a septic tank, and a 1440 square foot shop, and 8 storage units and is located on the outskirts of Casa Grande, Arizona. The problem was that the seller (the bank) didn’t have the title for the 1300 square foot manufactured home (built in 2006) on the property. So they were just selling the land. 

There were multiple offers so we offered 67k and our offer was accepted. We then had the well and the septic inspected and we inspected the manufactured home (all functional). There was a bunch of trash in the yard (old broken lawn mowers, golf carts, and big garbage items). And it was hard to get to because the neighboring property put up a fence blocking access to the dirt road that people used to use to get to the property. 

During the inspection period we renegotiated the price down to 60k. A private money lender who wanted to learn more about how to invest in real estate came in with 55k for the purchase and we came in with 7k for the rest including closing costs. After we closed we brought in a tractor to make a road and another tractor to put the garbage in a dumpster to be hauled away. We fixed a portion of the roof and did a few more minor repairs on the manufacture home and got that functional. Total in repairs were about 15k which was paid for by the private investor who is making 10% on his money while it is invested.

We applied for a bonded title which you can do when a you find personal property (the manufactured home) on a property that you own. We got the bonded title and put the property on the market looking for a specific type of renter who wants a lot of land and needs a large shop. We found the renter this week, he filled out the application, and his back ground check and credit check all came in good.

Here are the numbers:

Total cost including repairs 77k

Rent $1750

Interest payments to the private money lender until the property gets a long term loan $583

Taxes and insurance around $150

Maintenance/repairs budgeted $100

Vacancy/turnover $150

Monthly cash flow $767

ROI 767 x 12 / 7000 = 131% per year

Mortgage on long term loan for 70k at 5.25% for 20 years $472.

ROI with long term mortgage 150% per year.

ARV - because it is a pretty unique property it is hard to find comparables, but making some adjustments from other properties in the same area, I would put the value at about 195k as is.

Please let me know your questions or comments.