In this episode we go over how much we make on a $14,750 house! This is basically a follow-up from the previous video. We purchased this rental property out-of-state, fixed it up, and now it’s renting for $650 a month. Here we go over how much we make on it, how much the expenses are as well as the cash-on-cash return.
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HOW MUCH WE MAKE on a $14,750 HOUSE! 🏠 (Buying Cheap Properties Out-Of-State Real Estate Investing)
Transcription
Below is a transcription of the podcast. This transcription was taken from Otter.ai so it might not be completely accurate:
This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design their best lives.
Hey guys, it’s Sharon from digital nomad quest. And this is Sean with everything, Rei, and today we’re going to go over how much we make on a property at $14,750. If you guys are new to this channel, welcome, I’m all about teach y’all how to build passive income, become financially free and design your best life. So if you guys are interested in that, make sure to subscribe, and also subscribe to Sean’s channel where he talks all about real estate investment. So as a recap, from our previous video, we talked about how we purchased this property going step by step from finding the deal to actually getting tenants in. If you haven’t seen that video yet, check it out over here. To summarize, again, we actually found this off market deal from our agent who sent that over and we close it with all cash. So it was a very smooth transaction, we got to actually down from $20,000 to $14,750, which was a super awesome deal, the closing costs ended up being $767.33, which is a lot lower than my previous purchase at 37,500. Because actually got a loan on that property. So with buying all cash, you’re gonna incur less fees when purchasing the property. Now Shawn’s gonna go over the repairs, I know, some of you guys might be interested in the different line items and how much they cost. So he’s gonna go into detail with that. So when we got into contract with his property, our agent actually estimated cost between 7000 to $10,000, to do a full renovation so that we can rent it out for $650. After doing inspections, we noticed that there was no h vac system. And then after our property manager walked the property, she knows that the roof was just in really bad condition. So we went in there, we realized that we plan to spend a little bit more, but we want to do things right getting done in one shot, but then we’ll have to worry about it later in the future. So there’s a whole laundry list of items that we can go through, but I’m just going to go over the big ones. So the base expense that we had was installing the new H x system. This was a really small 800 square foot home with no prior H vac system. So there was no ductwork, there was no central heating system. And of course, no central AC, the previous tenants were using small space heaters in every single room. And there was also the small window AC units for a few of the rooms. So we decided to get rid of all those things. The property manager hired a professional H fac servicer to come in install a new ductwork all around the house and install a centralized H vac system with AC unit as well. The whole process cost around $5,000, which is really surprising to us because that is very, very cheap, especially relative to what we pay here in the Bay Area. Now the roof was also shot. So we decided instead to just do some small repairs here and there, we decided to tear it off, and it put in a brand new roof on top and I cost us around $2,200, which includes a three year warranty in case something happens in between the floor was also in pretty bad condition, some of the parts also had rot on it. So we decided to refinish the floors and put in carpets in some of the rooms where it made sense, that whole process cost us around the $2,000. So after adding in all the miscellaneous repairs, our total repair cost was $12,869. And just to know a total renovation under $13,000 is pretty affordable. And I would say that it really depends on the different market that you choose. So for me, I actually mentioned this in a previous video, but basically a property that I purchased that $23,000 I had to do a full renovation on that as well. And it was about the same square footage. And that actually cost me $33,000 To repair everything. So that was like $20,000 More than this one. So it really depends which marquee choose. And again, Bay Area’s even more expensive than that it might be 70,000 to $100,000 for a full repair like this. And the really cool part about this was we had our property manager basically be our boots on the ground, and our general contractor on this project. As someone who lives 3000 miles away, there’s no way we would have been able to do this massive project without their help. So if you guys look to buy a property that needs extensive rehab work, make sure your property manager is okay with filling that role for you. And another thing to note when it comes to these repairs, we look to our property management companies to make that property to rent ready standard for our tenants in that market. So they have expertise in that market and we trust them to make it rent ready for them. The renovation isn’t going to be super HGTV worthy or anything but it’s going to be great for our tenants, we made sure to put in a new H vac system, we made sure to get a new roof and everything like that so that they could be happy in the property. Now we basically did a whole renovation to make it nice for them. So going back to the numbers, our purchase price is $14,750. Our closing costs are $767.33. Our renovations were $12,869. So our total cash in with repairs was $28,386.33. And as a quick story, basically we had other tenants that were coming in initially at $695. But they ended up backing out so now we have new tenants coming in at $650. Property taxes are going to be about $50 per month. And assurance is going to be around $38.75 per month because we paid in all cash we don’t have a monthly mortgage we need to pay. We’re also paying the property manager $58.50. A cool thing is if you have a larger rental portfolio that the property management company is going to manage you can possibly talk them down in terms of fees. So it used to be 10% for our fees, but now we’re paying 9% of our gross income for our property management fees. So what that basically means is if you were paying 10% For
Were the pm fees on a $650 per month rental income, you’d pay $65 for the pm fees. Now we’re bringing that down to $58.50. So after the expenses of property taxes, insurance and pm fees, we are left with $502.75 in cash flow. Now the general rule of thumb we’d like to reserve 10% of our gross income as cash reserves, so that could pay for future repairs, capital expenditures, or even vacancies in the future. In this case, that’s $65 that we just hold in reserves that we don’t consider our actual cash flow. Now if we’re deducting that 10%, which is $65, we’re left with $437.75. So if we tally up all the returns that we get on the analyze basis, our total cash on cash return is around 21.25%. If we take into account the cash reserves that we’re not going to spend, no total return is 18.51%. In order to calculate cash on cash return, you’re basically multiplying your cash flow by 12, which is for the year, and then dividing that by the amount of money you’ve put into the deal. So in this case, we are including everything from the purchase price to the closing costs to the repairs, so we divide up our cash flow times 12 divided by the caching. As you can see from these numbers, this is an absolutely amazing deal. Normally, we charted something between the 10 and 12% range here, we’re way above that at 18.51%. After take into account capital reserves, so we look at the math here, we should be paid back in five to six years, which is amazing. And after that, just free money that comes into our pockets. I thought this is a super fun project. And it was actually our first deal that we did together we got to buy this property off market or a really good price you got to see a complete renovation from where it was before to where was after full age back work, new roofing, and now our cash flow is like a king. So we hope you guys enjoyed this episode on how much we make on a $14,750 property. We found this as a super good deal, but let us know in the comments what you guys think about our purchase. And if you guys are interested in out of state investing and buying these affordable properties, we do have a step by step guide on how to purchase your first rental property where we go over how to research your market, how to analyze deals, how to build your boots on the ground team and more we walk you through step by step and even showcase case studies where we’re actually doing the process with you so you can actually watch us call agents and pans and things like that and just watch us buy a property with you. So you guys are interested in checking out the course remote rental riches, it’s in the link down below. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.
Transcribed by https://otter.ai
Hey guys, it’s Sharon from digital nomad quest. And this is Sean with everything, Rei, and today we’re going to go over how much we make on a property at $14,750. If you guys are new to this channel, welcome, I’m all about teach y’all how to build passive income, become financially free and design your best life. So if you guys are interested in that, make sure to subscribe, and also subscribe to Sean’s channel where he talks all about real estate investment. So as a recap, from our previous video, we talked about how we purchased this property going step by step from finding the deal to actually getting tenants in. If you haven’t seen that video yet, check it out over here. To summarize, again, we actually found this off market deal from our agent who sent that over and we close it with all cash. So it was a very smooth transaction, we got to actually down from $20,000 to $14,750, which was a super awesome deal, the closing costs ended up being $767.33, which is a lot lower than my previous purchase at 37,500. Because actually got a loan on that property. So with buying all cash, you’re gonna incur less fees when purchasing the property. Now Shawn’s gonna go over the repairs, I know, some of you guys might be interested in the different line items and how much they cost. So he’s gonna go into detail with that. So when we got into contract with his property, our agent actually estimated cost between 7000 to $10,000, to do a full renovation so that we can rent it out for $650. After doing inspections, we noticed that there was no h vac system. And then after our property manager walked the property, she knows that the roof was just in really bad condition. So we went in there, we realized that we plan to spend a little bit more, but we want to do things right getting done in one shot, but then we’ll have to worry about it later in the future. So there’s a whole laundry list of items that we can go through, but I’m just going to go over the big ones. So the base expense that we had was installing the new H x system. This was a really small 800 square foot home with no prior H vac system. So there was no ductwork, there was no central heating system. And of course, no central AC, the previous tenants were using small space heaters in every single room. And there was also the small window AC units for a few of the rooms. So we decided to get rid of all those things. The property manager hired a professional H fac servicer to come in install a new ductwork all around the house and install a centralized H vac system with AC unit as well. The whole process cost around $5,000, which is really surprising to us because that is very, very cheap, especially relative to what we pay here in the Bay Area. Now the roof was also shot. So we decided instead to just do some small repairs here and there, we decided to tear it off, and it put in a brand new roof on top and I cost us around $2,200, which includes a three year warranty in case something happens in between the floor was also in pretty bad condition, some of the parts also had rot on it. So we decided to refinish the floors and put in carpets in some of the rooms where it made sense, that whole process cost us around the $2,000. So after adding in all the miscellaneous repairs, our total repair cost was $12,869. And just to know a total renovation under $13,000 is pretty affordable. And I would say that it really depends on the different market that you choose. So for me, I actually mentioned this in a previous video, but basically a property that I purchased that $23,000 I had to do a full renovation on that as well. And it was about the same square footage. And that actually cost me $33,000 To repair everything. So that was like $20,000 More than this one. So it really depends which marquee choose. And again, Bay Area’s even more expensive than that it might be 70,000 to $100,000 for a full repair like this. And the really cool part about this was we had our property manager basically be our boots on the ground, and our general contractor on this project. As someone who lives 3000 miles away, there’s no way we would have been able to do this massive project without their help. So if you guys look to buy a property that needs extensive rehab work, make sure your property manager is okay with filling that role for you. And another thing to note when it comes to these repairs, we look to our property management companies to make that property to rent ready standard for our tenants in that market. So they have expertise in that market and we trust them to make it rent ready for them. The renovation isn’t going to be super HGTV worthy or anything but it’s going to be great for our tenants, we made sure to put in a new H vac system, we made sure to get a new roof and everything like that so that they could be happy in the property. Now we basically did a whole renovation to make it nice for them. So going back to the numbers, our purchase price is $14,750. Our closing costs are $767.33. Our renovations were $12,869. So our total cash in with repairs was $28,386.33. And as a quick story, basically we had other tenants that were coming in initially at $695. But they ended up backing out so now we have new tenants coming in at $650. Property taxes are going to be about $50 per month. And assurance is going to be around $38.75 per month because we paid in all cash we don’t have a monthly mortgage we need to pay. We’re also paying the property manager $58.50. A cool thing is if you have a larger rental portfolio that the property management company is going to manage you can possibly talk them down in terms of fees. So it used to be 10% for our fees, but now we’re paying 9% of our gross income for our property management fees. So what that basically means is if you were paying 10% For
Were the pm fees on a $650 per month rental income, you’d pay $65 for the pm fees. Now we’re bringing that down to $58.50. So after the expenses of property taxes, insurance and pm fees, we are left with $502.75 in cash flow. Now the general rule of thumb we’d like to reserve 10% of our gross income as cash reserves, so that could pay for future repairs, capital expenditures, or even vacancies in the future. In this case, that’s $65 that we just hold in reserves that we don’t consider our actual cash flow. Now if we’re deducting that 10%, which is $65, we’re left with $437.75. So if we tally up all the returns that we get on the analyze basis, our total cash on cash return is around 21.25%. If we take into account the cash reserves that we’re not going to spend, no total return is 18.51%. In order to calculate cash on cash return, you’re basically multiplying your cash flow by 12, which is for the year, and then dividing that by the amount of money you’ve put into the deal. So in this case, we are including everything from the purchase price to the closing costs to the repairs, so we divide up our cash flow times 12 divided by the caching. As you can see from these numbers, this is an absolutely amazing deal. Normally, we charted something between the 10 and 12% range here, we’re way above that at 18.51%. After take into account capital reserves, so we look at the math here, we should be paid back in five to six years, which is amazing. And after that, just free money that comes into our pockets. I thought this is a super fun project. And it was actually our first deal that we did together we got to buy this property off market or a really good price you got to see a complete renovation from where it was before to where was after full age back work, new roofing, and now our cash flow is like a king. So we hope you guys enjoyed this episode on how much we make on a $14,750 property. We found this as a super good deal, but let us know in the comments what you guys think about our purchase. And if you guys are interested in out of state investing and buying these affordable properties, we do have a step by step guide on how to purchase your first rental property where we go over how to research your market, how to analyze deals, how to build your boots on the ground team and more we walk you through step by step and even showcase case studies where we’re actually doing the process with you so you can actually watch us call agents and pans and things like that and just watch us buy a property with you. So you guys are interested in checking out the course remote rental riches, it’s in the link down below. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.
Transcribed by https://otter.ai
