Have you ever thought about getting into the rental game? Personally, I’ve been enamored with the idea since I was 16 years old. And now, 14 years later, it looks like I’ll finally be throwing my hat into the passive income rental ring! YIPPEE! Watch out Monopoly man, you may be getting dethroned! Now where did I put my monocle…?
Leading Up to the Purchase
So how did Liz and I find our investment property? Let me tell you, it wasn’t easy. Prior to this property, we scoured the entire area (for the entire summer) for anything that was for sale under $95,000. We walked through about 10 properties – four of those we simply walked away (for various reasons), and the other six we were outbid on by typically more than $10,000. We wanted to find an absolute deal, not pay retail price for a home.
There was one property that I had been eyeballing all summer (yes, the one we ended up buying) – it was a Fannie Mae foreclosure. The exterior color wasn’t too desirable (see the photo below), it needed quite a lot of TLC on the inside, and they started the price point WAY to high for the area. As long as I could stay patient, I figured that all of these factors might just lead to a deal.
The property was listed in August at $107,500 and absolutely NO ONE looked at it. The price was simply too high. They then dropped their asking price in September to $99,975. It was more enticing, but still not worth what they were asking.
About 20 days after they dropped the price to $99,975, my realtor prompted me to take a walk through it, so that if the price dropped again I’d be ready with my bid. I was actually fairly impressed with the house. It definitely needed work, but it had solid bones and I could handle many of the repairs myself (can anyone say cost savings?!). After crunching some numbers, we decided that we’d be comfortable offering $80,000 on this house.
Sure enough, about 10 days after the walk through, the house price dropped once again – this time to $89,999. I immediately submitted my offer of $80k. Then the day-by-day negotiating began.
- They countered my $80k offer with a counter of $89,999….their full list price. WHAT?? That made no sense….
- I countered to my original offer $80k – if they didn’t budge on price, why should I?
- They countered at $86,500
- Since they finally countered for real, I lifted my asking price slightly to $81,000 (after all, you’ve got to play the game a little bit if you want to win)
- Annnnd, they accepted my offer at $81,000. WHAT? Lol, AWESOME! WE HAVE A HOUSE!
As excited as I am, I need to remind myself that the deal isn’t quite done yet. The house still needs to be inspected, which hopefully doesn’t raise any huge red flags. If it does, we can still walk away. If it doesn’t, then it’s time to get to work and build some equity!
The Pros and Cons of This House
With any house purchase, there are always pros and cons. Here’s the complete list for this house as I see it:
- The house is near our residence, which will make it easy to fix up and to repair once we have renters
- We bought it at $81k. Fixing it up will cost $10k, making it worth $120k (that’s instant equity of $30k!), and it will rent for $1,000/mo.
- It’s right across the street from a large park
- It’s a half-block away from an amazing charter school
- It’s 7 blocks away from a large college campus (so it could attract college renters)
- It’s a half-mile from the quaint down-town area (so it could attract older, social renters)
Once fixed up, the house will have a solid value (giving us $30k in equity) and should have a large pool of interested renters.
- It will take a couple months to fix up. The major fixes are to completely gut the bathroom and kitchen, and to refinish all the hardwood floors.
There really aren’t many cons at all. We just need to put some sweat equity into this house and get it rented as soon as we can so it starts earning some money!
The Next Steps
So what’s next? We still need to get the official offer acceptance letter back from Fannie Mae, which I assume will be on Monday. Once we get that though, we’ll then need to:
- Provide Fannie Mae with 10% earnest money ($8,100) in the form of a cashier’s check, which they’ll hold until closing
- Provide Fannie Mae with proof of our funds (since we’ll be paying cash) – simply a statement from the bank with our account number blacked out
- Have the inspection – this is already scheduled for Thursday
- Decide if we still want the house after the inspection is complete. If we do, then we set up a closing date!
- Then, after close, we immediately get to work on repairs!
What do you think about this whole purchase? Are you excited to hear the story as it all unfolds?