Episode 9 of From The Nest Podcast by Building Bluebird:
Here is the house that we would LOVE to buy for our family but are probably not at this point yet
Here is a picture of the house we toured with bullet holes through the front
Todays Topic: Buying a house site unseen!
We bought a rental property site unseen! On today’s episode we are breaking down how we found this deal and our analysis that made us buy this single family home.
How did we find this property?
An out of town investor found me through Instagram
Stats on the house:
Square Feet: 1,100
Methods of researching a property without going inside:
Research the home and neighborhood on Zillow
Take a virtual tour using google earth (if you can’t drive by the house)
Drive past the house and through the neighborhood
Walk the neighborhood and talk to the neighbors* (This is where you will get a lot of really great insight)
Crunching the numbers:
Asking price: $23K
Renovation Estimate: $7K
Total Cost of Project: $30K
Estimated monthly rent: $750-$800
ARV (after renovation value): $50K (based on comps)
Back of the napkin math:
2% Rule: 2.67%
The 2% rule says that for a rental property investment to be “good”, the monthly rent should be equal to or higher than 2% of the purchase price.
$30,000 * 2% = $600/month
$800/$30,000 = 2.67%
Cap Rate: 18%
The capitalization rate, often just called the cap rate, is the ratio of Net Operating Income (NOI) to property asset value.
Purchase Price = $23,000
Gross Annual Income: $800 * 12 = $9,600
Monthly Operating Expenses: $451 * 12 = $5,412
Water & Sewer: $150
Property Taxes: $106
Vacancy: $40 (5%)
Repairs: $80 (10%)
(9,600-5,412)/23,000 = 18.2%
50% Rule: 56%
The rule states that — on average — the total expenses associated with operating a SFH investment will be about 50% of the gross rents.
Bigger Pockets has a great website that allows you to analyze deals and connect with other investors.
Tip of the Week…
Chris: Tip one - don’t cut trim hungover! Tip 2! When cutting outside corners at 45 degree angles, give an extra 1/8 inch to the measurement because you can always cut the excess and it is better than cutting it too short.
For inside corner angles, check out this tutorial by Bob Villa - it is super helpful and makes a really tight corner.
Lindsey: Cost saving Tip - if you want to save money on your tile installation, ask the tiler if you can be his apprentice to cut down on the cost. I was able to pay 1/3 of the original quoted labor cost by offering my services as the helper. So the tiler came in for one day and helped me set up all of the tiles and made all of the appropriate cuts with his tools and I completed the grouting the next day. No only did I save money, but I was able to learn a new skill!