Case Study: Cockroaches to Cash Flow

[Jonathan Small]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $72,000
Cash invested: $107,600

Case Study: Cockroaches to Cash Flow
Property Acquisition
I found this property through MLS. It was listed by David. He is a realtor that I previously purchased a small portfolio from and therefore had a good professional relationship. The home was a bank foreclosure from a reverse mortgage. This is a 4-bedroom, 2.5-bathroom single family house.

What made you interested in investing in this type of deal?

It was built in the 2010s and located in an established neighborhood with convenient access to schools, amenities, and major transportation routes. While the property's location was desirable, it was evident that the house had been neglected for several years. The interior was outdated, the landscaping was overgrown, and several deferred maintenance issues were apparent.

How did you finance this deal?

Financial Highlights
• Acquisition Price: $72,000
• Renovation Costs: $35,600
• Total Investment: $107,600
• Funds: raised from personal savings and private lender

How did you add value to the deal?

The renovation aimed to modernize the property, enhance its appeal to potential tenants, and maximize its long-term value. The scope of work included:
• Interior: Major pest remediation that took 3-4 weeks. A complete overhaul of the kitchen and bathrooms, including cabinets, countertops, LVP flooring, electrical and plumbing fixtures.
• Exterior: Landscaping improvements, including tree trimming and shrub removal. Power washing the exterior, repairing the driveway, and painting the front door

What was the outcome?

Financial Highlights
• Acquisition Price: $72,000
• Renovation Costs: $35,600
• Total Investment: $107,600
• Funds: raised from personal savings and private lender
• Appraised Value: $160,700
• Monthly Rent: $2,150
• Cash-Out Refinance: $3,200 after paying off private lender and myself
• Rate and Term Refinance: 30 yr amortization, 7.25% interest, 70% LTV
• DSCR: 1.45%

Lessons learned? Challenges?

Hindsight Critique
• Continue to build relationships to increase deal flow
• Property manager (Mercer Hughes) is critical to completing renovations and quick tenant placement
• Continue to build relationships with private lenders and personal investors
• Have cash available to make quick competitive offers

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Here's the breakdown of rental income and expense analysis:
1. Annual Gross Income: $25,800 (Monthly rent of $2,150 x 12)
2. Annual Expenses: $25,800 * 0.40 = $10,320
3. Annual NOI: $25,800 - $10,320 = $15,480
4. Annual Debt Service: $10,680 (Calculated previously using a mortgage calculator with a loan of $131,775, 7.25% interest, and a 30-year term)
5. DSCR: $15,480 / $10,680 = 1.45 (approximately)