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.
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!
Real Estate Investing Case Study
Address: 850 S Waverly Street, Columbus, Ohio
Original Purchase Price: $9,500.00 CASH
Google Map Location
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.
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.
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:
- 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….
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.
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.
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!**
neighborhood view of Waverly
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!