Real Estate Investing Case Study, investing, rental house, rehab, real estate investing

How to sell a house, make $10,000 and keep the cashflow: A Real Estate Investing Case Study

In this real estate investing case study you’ll learn how we made $10,000, sold a house and kept the cash flow! 

So you want to invest in real estate? Today we wanted to open the archives to tell you a bit about what we’ve done in real estate investing and open your eyes to some of the many options there are. Now, you should know, we are pretty persnickety when it comes to investing.

We like to make the most amount of money for the least amount of cash outlay. Based on our criteria, is was a “deal.”

We believe in purchasing houses with cash and limiting the need and exposure to mortgages. The total investment for this house was less than $45,000.

This is one of our favorite deals because where we were able to buy a house, fix it up, rent it out, get $10,000 cash AND keep the cash flow. 

waverly

The house before we got started…

The background story

We bet you can relate. You’re frustrated with your current financial affairs so you’re looking for ways to make money. You’re eager to get started and a viable investment just can’t come soon enough. We were looking for deals and ways to make money. We wanted to own property to increase our cash flow and be able to call ourselves a landlords.

How we found it

One of the advantages to being a Realtor and holding a real estate sales license was access to the local Multiple Listing Service (MLS). We developed a criteria for property that met our investing standards. Some of the main factors included:

  • Ability to own the home free and clear, with no mortgage
  • The property needed renovation and rehab
  • Ability to do a lot of the work ourselves
  • Property had to be a 3 bedroom 1 bath at minimum
  • Property had to be a HUD foreclosure and had to have the ability to deal with a bank

We considered other factors as well, including the quality of neighborhood and event the street that the house was located on!

The MLS made it simple to identify properties that fit our investing criteria.

From there, we would focus on looking at the home’s asking price values and the potential after repaired valued. LLP reader know that we are value investors at heart!  That means that we wanted a house that was intrinsically worth more than it was priced. This happens when buyer circumstances and/or market timing allows it to be purchased for less than a new home or its true value.

Why that house

After visiting many houses on the list, 2 peaked our interest, and Waverly was one of them. Ultimately, we ended up buying both, but we will focus on one house at a time!

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Real Estate Investing Case Study

Address: 850 S Waverly Street, Columbus, Ohio

Original Purchase Price: $9,500.00 CASH

Google Map Location

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What renovations did the property need?

Fortunately for us, the house was in great shape. The cape cod which sat on slab with no basement, only crawlspace. It was a two story with 2 bedrooms downstairs and one loft upstairs with a bathroom was on the first floor.

We knew this would be a rental house that we would buy and hold for monthly cash flow so we made the decision up front to completely renovate the property. Of course we could have done less and kept some of the old features, however we wanted to minimize future maintenance and repairs when the tenant would occupy the home.

The bank put a new roof on the house with 3-dimensional shingles…gorgeous! These higher end shingles cost the bank more so we knew there was value to be captured.

We focused purely on improvements that would add value to the property.  Our goal was to increase the property value so we could recoup the increased equity after repair.

kitchenbeforeandafter

What was the original fix up cost?

Our cash investments into the property totaled $7,080. Labor cost another$4,000 for a grand total of $20,580 including the purchase price. We had to pull permits to replace the furnace and the water heater.

livingroombeforeandafter

Did you do the work yourself or did you hire it out?

To save money, some of the work was Do-It-Yourself which included:

  • Landscaping
  • Trash removal and clean out
  • Removal of carpet throughout the house
  • Gutting the kitchen and bathroom
  • Painting the house

Renting the house

Waverly was rented for 3 years before we actually sold it! We consider it a long-term flip. To be considered as a “normal” flip it would have had to be sold within the first six months to truly be a fix and flip.

We chose not to hire a property management company and decided to handle all leasing and tenant relations ourselves. This was our 3rd rental house so we felt fairly comfortable handling those back-end relations. One of my contractors had a retired veteran that needed a house. The contractor made the referral and the man is still living there today…and we sold it 4 years ago!

Selling out, moving on

We wanted to free up some cash so we decided to sell Waverly. Our investment firm was growing and we wanted to move on to multifamily. We listed the property for $40,000.Here’s the actual ad we used….

ACTUAL AD:

LP: $40,000
850 S Waverly Street
Columbus Ohio 43227 
3 Bedrooms 1 Bath 
Fenced in backyard with detached garage 
Tenant occupied- 2 year into lease
Annual Income: $6,600
Annual Taxes: $905.28
Annual Insurance: $600
Kitchen-updated less than one year ago. Bathroom updated less than one year ago. Th improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Most building components have been rehabbed including a new roof, hot water heater, furnace, flooring, etc. The structure has been well maintained.
Waverly Street is a quiet residential street. Main Street is a local traffic artery and is within 5 miles and offers access to shopping, schools, employment centers, and freeways.
Property values have been stable. Demand for the area is average. Improvements do conform tothe surround homes. The neighborhood has no apparent adverse factors. 

We accepted an offer of $35,000 for the house [that’s almost $15,000 profit!]. Another investor wanted to buy it on terms so we sold with a private mortgage after a $10,000 down-payment to an investor’s self directed IRA.

The other investor’s IRA was held at a company  called Equity Trust. You’ll see them mentioned in the auditor record for the property below.

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Due to the fact that we held a loan for the investor we were able to charge interest for the life of the loan. Wow! The investor-buyer paid for 6 months on the note.

That means that we sold the house, but kept the cash flow!

That’s why we love real estate. To make a long story short, we SOLD the mortgage to receive full payout achieving $45,000! This allowed our note buyer to receive monthly passive income via loan payments. We’ll be sure to write more about this at a later date.

Notice the screen shot of the value from the Franklin County Auditor prior to listing the property for sale. Notice the county valued the property at $43,200.

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Let’s recap…

Our total investment in the property was $20,580.

We rented the house for 3 years at $550/mo.

Rental Income: $550.00 per month x 12 = $6,600 gross annually

Total rental income for 3 years: $6,600 * 3 years = $19,800

Sell the house on private mortgage with these terms: $10,000 down-payment, $25,000 mortgage principle, 5% interest on a 10 year note.

Sell the private mortgage for face value to recoup the cash = $25,000.

***Total profit from deal: $55,000 HURRAY!**

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neighborhood view of Waverly


Screen Shot 2016-03-29 at 7.58.24 PM Waverley house backyard

What to take away from this real estate investing case study

This is a unique deal with a lot of moving parts! Fear not, in the coming weeks we will show you how you can do this too! Let us know what you think in the comments below, we’ll be happy to answer any questions!

We show you how to get started generating passive income so you can have more personal liberty and financial freedom. We do this by helping you determine which passive income path is right for you and get you started on your journey with our online community, education, books and tools. We talk about personal finance, building a business and living life on purpose.

6 thoughts on “How to sell a house, make $10,000 and keep the cashflow: A Real Estate Investing Case Study

  1. Thanks for taking us through the deal, that is neat to see how all the numbers worked out. How far from the property do you live to be able to do a lot of the work yourself?

    I’d also be curious to hear if you had an troubles as the property manager – most investors I know try to stay away from homes in the price range because of the headaches with tenants. It sounds like you got someone good who stayed for multiple years though?

    1. Hi Brain, Thanks for reading!

      At the time I lived in German Village, Ohio about 21 minutes away from the property at Waverly St (via google maps)

      Per your property management question: I definitely agree the price range has it’s tenant headaches, however we were and are extremely selective about our residents. Too often property around this price range is unimproved by landlords and lacking appeal from quality tenants. By us renovating and updating, it allowed us to offer a basically new product at an affordable price. There are good people at all socio-economic classes and our’s was a retired veteran on a fixed income.

      (Ed) really made the place home and my biggest issue with him was expecting the place to be perfect! To be honest little headaches included replacing the used refrigerator we supplied, changing our no pet policy, and allowing him to change the upstairs paint color.

      1. That makes sense. Did you end up denying a lot of applicants to get to that one tenant? I’m sure it also really helps at the price range that you did it yourself rather than hiring a property manager.

        1. We ended up listening to a lot of life stories lol, the key is to not feel bad and consumed by other people’s issues.

          We need stability and to make a profit!

          At this price point we’ve found it’s best to start with screening and tenant selection, it’s just like people enjoy knowing the owner of a small business. After being leased and occupied, as well as knowing the neighborhood it’s easier to hire a property manager. It also provides a benchmark for preformance.

          I was fairly young at the time of this deal, doing it myself was about maximizING cash, now we sub!

          Thanks for the engagement!

          1. That’s a great call – you care way more than any property manager about the tenant fit, so better to hand off to them later.

            For people that live not too far from low prices areas, this is a great way to get started! My options are a little more limited living in San Francisco so do turnkey.

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