Hello Investors:
I'm selling a turnkey investment property in Denton, TX that will generate immediate cash flow and a return on invested capital of more than 10% (even after including vacancy and repairs). You'll need to a downpayment of approximately $36,000 to get these results. I've owned this as a rental for the past nine years, so I can speak precisely about the performance of the investment.
The purchase price is $140k. The house has 3 bedrooms, 2 baths, and a 2 car garage. It's 1475 square feet on a 4500 square foot lot, built in 2002, with roof new as of this past summer. The house has been properly maintained, and no make-ready expenses are required. It is in the Windsor Ridge Estates subdivision. It's leased for $1250 per month to tenants who came in July 2013 at $1200 per month. The lease runs through June 30, and nothing indicates they won't renew. A property management company takes 10% of the rent to manage the place, including handling repairs, paying HOA dues, collecting rent, depositing it to my bank account, and sending me a year-end statement so I can do my taxes. They do great work to make sure I don't have an extra job from this investment property but rather I can focus on the rest of my life while the money comes in. I never visit the property or speak with the tenants.
To get favorable mortgage terms and optimal leverage, you would make a 25% downpayment to have 75% LTV. This is the minimum downpayment required to conform with Fannie Mae guidelines. Closing costs are likely to be about $3000. Fannie Mae allows seller-contributions toward closing costs up to 2% of the purchase price, so here we can increase the purchase price by $2800 to $142,800 so that most of the closing costs for loan origination, title, appraisal, and so forth can be rolled into your loan and paid for over the life of the loan rather than up front, thus improving your leverage, reducing your up-front investment, and improving your return on invested capital. Also, to get best terms you should have not more than four existing financed properties or you will pay and extra eighth to quarter of a point in your rate.
My assumptions, each of which is based on either present costs where possible or historical trends where the future is unknown, are as follows (and I can send you a spreadsheet that shows all this and more so you can evaluate different scenarios):
Mortgage Inputs
Home Value Used for Purchase: $140,000
Mortgage Rate: 3.875%
Loan term in years: 30
Other Inputs
Rent currently: $1,250
Property Tax currently: $2,854
Insurance currently: $777
HOA has always been: $200
Assumed:
Home Value: $140,000
Projections:
Lost rent % due to vacancy based on past four years: 6.0%
Unplanned expenses based on past four years: $1,230
Calculated Details from assumptions:
2% Seller Closing Contribution: $2,800
Purchase Price: $142,800
25% Downpayment: $35,700
Loan Amount: $107,100
Equity: $32,900
Annual Cash Flow: $1,504
Annual Principal Paid: $1,893
With those numbers you'll get a 10.3% return ($1500 in cash flow and $1900 paid down debt) on your invested capital if the property has zero appreciation. And you'll get an 18.8% return (cash flow plus paid down debt plus appreciation) if the property gets 2% appreciation. Today I used Zillow's mortgage marketplace to request offers from lenders on this property for a buyer with strong credit (760+), low debt ($0/month), and good income ($150k annual). The returned offers were for 3.65%, 3.875%, and 4%. See this at https://www.zillow.com/mortgage-rates/#request=ZR-QWQYYNH. Contact a lender shown there, or submit your own numbers for your results (make sure to use it in the afternoon when more lenders participate at better rates rather than off-hours when offers are few and high).
The return is excellent even without the best loan terms. With 4.125%, you'll have 9.5% return ($1300 in cash flow and $1800 paid down debt) if zero appreciation, and 18% return if 2% appreciation.
Even in the relatively grim situation where you have the higher interest rate and where both vacancy and unplanned expenses are double what I've experienced in the past four years, you'll still have a 3% return if no appreciation and an 11.5% return if 2% appreciation.
Please contact me if you are interested in buying this. At that point, I can share more info with you including the exact address, the year-end statements from the property manager for the past four years, my spreadsheet for the scenarios described above, and so forth.
After you get a preapproval letter from a lender, we'll use the standard sales contract from the Texas Real Estate Commision found at https://www.trec.state.tx.us/pdf/contracts/20-12.pdf. We'll do the transaction through one of the major local title and escrow companies who will handle all the remaining paperwork and closing. We'll do a 7 day option period with a $100 option fee. The earnest money will be $5000 if the contract calls for closing within 30 days and $10,000 if it calls for closing within 45 days.
Finally, although I believe all my calculations to be accurate, I encourage prospective buyers to do an independent analysis as well.
Realtors should not view this post as an opportunity to get business from me. I am not open to a commission or fee for those who assist in bringing me a buyer. I do not want to list the house in the MLS. I believe the numbers are compelling enough that I'll be able to find a buyer without Realtor assistance.
Thanks!
Bill
