Closed on #27 buy & hold

[Ken P.]

We closed Friday afternoon on property #27!  The latest addition to the portfolio we've built up over the past 5 years is a 600 sq ft condo apartment in a complex where my wife and I already own many units.  In this building we owned 2 of the 4 apartments, including the unit below.  When we heard the owner who lived in one of the other two units had passed away, we contacted the family to express our interest in purchasing, knowing the chance was low that any family member would want to live in the condo.  Probate took almost a year to sort out, but sure enough, once the relative who inherited the place had title we received a phone call, which led to Friday's closing.

The numbers look like this:

Purchase price - $30,000

Down payment - $15k, plus $2000 closing costs (high, but in the PA we agreed to pick up the seller's closing costs so they would net $30k)plus $1k for repainting and new fixtures = $18k total out of pocket costs to close

Loan - Private loan of $15k @ 5% for 4 years.  P&I = $350/mo

Rent - $650/mo.  Unit is pre-leased to a former tenant who is moving back to the complex

HOA - $135/mo. This includes CapEx reserves, so CapEx is not something that we have to budget for

Taxes - $72/mo

Maintenance - $50/mo. Unit already has new windows, new central HVAC, new appliances, and good hardwood floors

Cash flow - $45/mo for the next 4 years, then $400 per month going forward.  

ROI is over 20% even during first 4 years, largely from principal repayment, and cash on cash after the loan is repaid is 26% on the $18k initial investment. The condo on its own may be worth a bit more than we paid, perhaps $35k, but sold as a multifamily package would probably garner close to $40k per door, so we also have some decent equity capture at purchase; $10k equity gain on a $18k investment (55%). Refinancing to pull out our initial cash investment in these condos is an option, but right now the plan is to hold as-is for the next 4 years, when this and a number of other short term loans on condos at this complex will be paid down, allowing me to retire from my day job and live on the cash flow if I so choose, or my wife to do the same for that matter.

Buy & hold real estate investing hasn't been a get rich quick endeavor, but with some time and energy we've experienced more gains in 5 years investing in real estate than 25 years of stock market investing in a 401k, and we will have a better income stream from RE than from an annuity we could purchase with the 401k.