Our House Offer Was Accepted! Let the Rental Games Begin!

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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.

02-Side and Front
Our new rental house!

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:

Pros

  1. The house is near our residence, which will make it easy to fix up and to repair once we have renters
  2. 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.
  3. It’s right across the street from a large park
  4. It’s a half-block away from an amazing charter school
  5. It’s 7 blocks away from a large college campus (so it could attract college renters)
  6. 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.

06-KitchenCons

  1. 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:

  1. Provide Fannie Mae with 10% earnest money ($8,100) in the form of a cashier’s check, which they’ll hold until closing
  2. 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
  3. Have the inspection – this is already scheduled for Thursday
  4. Decide if we still want the house after the inspection is complete. If we do, then we set up a closing date!
  5. 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?

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Make Money Passive Income Rental Property

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

26 Comments

  1. i am excited for you, congratulations. I can’t wait to see the before and after pictures! Love home improvement posts!

    • Thanks Bobbi! There should be some awesome DIY photos coming up! Can’t wait!

  2. Congratulations Derek. I will have to stop and see it when you are working there.

    • For sure! Hopefully the inspection goes well – I really like the potential in this house!

  3. Completely gut the bathroom and kitchen for $10K? Boy, you are really good. My bathroom and kitchen were “only” $50K.

    • $50k? Whoa, I think I just had a heart attack reading that. πŸ˜‰ In my house, I ripped out the floor, laid floor tile, re-tiled the entire shower, replaced the vanity, and rerouted the wiring – all for about $600. This is the power of doing it yourself. If I hired that work out, I probably would have been out $5,000!

  4. Congratulations! That is so exciting! I would love for you to write a post about the differences on closing on a house that you purchase with a mortgage vs paying in cash. I’m sure the process is much faster.
    Can you please explain pro #2? How do you earn 30K instantly in equity after fixing it up? Just trying to understand the process πŸ™‚ Thanks!
    Julie

    • When people walk through a house that has stained carpet, a dirty, dated bathroom, and a kitchen without doors on it, suddenly the home is only worth $80k. But, after that carpet is ripped out, the original hardwood floors are brought back to life, and the kitchen actually has some character, the home is instantly brought back to its full value. And for this area, that’s approximately $120,000.

      If I hired out all the work that needs to be done, it would probably cost me $35,000, leaving me very little equity in the home. But, by doing the work myself, I am saving $25,000 in the repairs, thereby allowing me to “earn” the equity in the home. Essentially, I am earning an hourly rate for my work, but it all goes into the house value, not into my bank account (not immediately anyway). Does that make more sense?

  5. Congrats!

    To be honest, I can’t get my head around $81,000 for a house. Here in Australia, you’d be lucky to find a derelict shed on a minuscule block of land… in the middle of nowhere, for that price!

    Looks like it’s in the perfect location, too.

    Have fun with the face lift. πŸ™‚

    • Yeah, it’s absolutely crazy how cheap homes are in my area. Working wages are pretty average and the cost of living is quite low, making it much easier for people to get ahead here. I simply can’t imagine paying $400k or more for a regular home! Here, that amount could buy an executive home with 20 acres!

  6. Congratulations, I hope it goes well for you. My parents owned some apartment buildings and houses they used as rental property when I was growing up; they sold everything within ten years time and vowed “never again”. Of course, this was in the SF Bay Area, and California judges think it is very appropriate to let deadbeat tenants live rent-free in someone’s home as long as the homeowners are “…rich, and won’t miss the income”. Oh, the stories I could tell! Here’s hoping your tenants are good people.

    • I sure hope we get quality tenants! Sometimes you just can’t dodge the bad renters, but there are often good ones as well. I’ll keep you all posted on what variety we get!

  7. What area do you live in? I’m ready to move.

    • West Michigan baby! Love it here! Although, our winters aren’t everyone’s favorite. πŸ˜‰

    • Thanks Mich! In about 5 years, we’ll be earning a consistent income each month, PLUS the house will probably be worth nearly double what I paid for it. Hope all goes as planned!

  8. That is incredible. And you can do the work yourself. Man oh man! Cash money savings $$$$!

    • A lot of it. In the end, we hope to spend less than $8,000 on the remodel. So far, it’s looking pretty good! Stay posted – more articles to come on this! πŸ™‚

    • Thanks Mr. I! All in, we spent about $88k on this house (including tax, closing costs, and repair costs) and we’ll be earning $1,200 a month in rent. That’s a pretty decent ratio. It was hard work, but definitely worth the resulting return.


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