Dos Mas (Two More)

My plan for today was to go to Church this morning and put some new carpet in my duplex this afternoon. I did go to Church (and ran the projection for the church services), but that was as far as I got with today's plan. The pastor was a little long winded and by the time I got home, I had decided that I was feeling lazy. I just didn't have much energy and decided to take the day off.

At 3pm, the phone rang. It was an investor from my local REIA. This particular investor has been a very successful rental property owner for over 20 years and until recently owned about 50 rentals. About a year ago, she decided to sell her portfolio of rental properties and move to Florida to retire. Obviously, as a sharp investor, she put the properties on the market at retail. During the past year, she sold many of her properties. She has asked me in the past if I wanted to buy any of the properties. I have always said yes, but at MY PRICE (which was about half of what she was selling for). She completely understood that, but of course wanted to get the most for her properties.

The headline in our local paper yesterday concerned a major drug bust in our city. Unfortunately, the drug bust occurred at two of the houses this investor owned. In the same 24 hour period as the drug busts, someone crashed their car into another of her properties, tearing the corner from the house. This investor has already made a bunch of money on the houses she sold and because of the bad tenants is now wanting to get rid of the rest of her properties - NOW! She called today to ask if I was interested in any of her properties. As usual, I said yes, but at MY PRICE. To my amazement, she said that she would sell both of the three bedroom houses that were involved in the drug raid for a total of $50,000 ($25,000 each), which is exactly MY PRICE.

I told the investor that I would take them both as long as they hadn't been destroyed in the raid. I asked when she could meet to show me the houses and sign the contracts. We agreed on 4pm. I grabbed a purchase contract and got out the motorcycle. It was a beautiful day, so I wanted to combine looking at the properties with getting in a nice motorcycle ride. We met at the houses at 4pm and I looked at both. One of the houses is in good condition and will be ready to rent out as soon as it is trashed out (but the seller). The other house is also in good condition, but will need interior paint and one of the rooms has a large burn hole in the carpet from the concussion grenade used by the police. I would estimate that I can have it ready to rent in 3 days.

As it turns out, the seller also arrived at the property on a motorcycle and we proceeded to ride to a local restaurant to sign the contract. Fifteen minutes later, the contract was signed and I was riding home.

So, how did the day turn out? I am buying two single family houses for $25,000 each. The properties have a retail value of $50,000 each. Therefore, at closing I will pick up $50,000 in equity. In addition, I will rent each house for $550 per month for total rent of $1,100. Operating expenses will be about $550 for the pair leaving $550 as the NOI. The mortgage payment on $50,000 will be about $316, meaning my positive cash flow from these two properties will be $234 per month or $117 per unit per month. In addition to the cash flow, I will be doing the management and maintenance, which means I will EARN back about an additional $200 per month.

So, my Sunday afternoon produced $50,000 in instant equity and a total of $434 per month ($5,208 per year) in cash. In addition, I will get whatever appreciation occurs (if any) over the long term; depreciation for tax purposes; and paydown of the mortgage principal balance (with the tenant's rent. NOT BAD FOR ONE AFTERNOON!

The icing on the cake is that this investor still has other properties left that I may be able to buy at the same 50% discount!