Thursday, February 17, 2011

Final foreclosure update?

In December of 2010 I purchased a townhouse at a foreclosure auction

I wrote an update about the situation here, talking about the overall financial picture.  I still don't understand why citibank didn't redeem the property prior to auction, but hey, it worked out for me. 

To get the former owners to move out, I offered them $500 and a date, and they agreed, and moved out on schedule. 
 While the property is in pretty good shape, they had hung up quite a few pictures and so on, and the paint was darker than I'd like, so we took the opportunity to patch the holes and repaint with a lighter, warmer shade on the walls, and to change the ceiling color to white. 
Many times, when they're doing these projects, it's built and painted as cheaply as possible.  In this case they painted everything beige -- walls, ceiling, hallways, etc.  I've always liked a different color ceiling, and in this room having it be white makes a big difference in the rooms feel. 
The two stripes on the wall just to the left of the light fixture are test strips of paint; wanted to see what it would look like on the wall.   I had to replace the dishwasher -- didn't work, and repairs were fairly expensive, so easier to go get another and pop it in, and I'll probably have the stove looked at; some issue with the oven.  Financials: 
  Painting costs:  $400
  New dishwasher:  $650
  Stove repair (projected) $125
  Move out inducement:  $500
  Purchase price:  $101,000
Total acquisition price:  $102,675

I had to carry it vacant for 15 days while it was painted, but it's occupied now, and that's a short vacancy for rental properties, especially in this sort of market. 
As a rental, this 3br 2.5 bath/2000 sq foot will rent for $1100-1200/month.  This is down $200 a month from the last few years, and this reflects the overall market.

Basically I'm able to rent it at a rate of 1% of the total purchase price per month, after taxes.  This is the lowest cost unit in this development in terms of purchase price, so I'm probably doing ok...but that's not the whole story.    After property taxes, and with a set-aside to cover stuff like a management firm to manage the rental, I'd expect an ROI of around 6%. 

 Prices in this area (north marysville, wa) are still going down.  An identical floorplan unit next door was repo'd by a bank, and put on the market.  The bank has been cutting the price $5-8k/month for the last year.  They initially listed it at 160k, and the last listing that I saw had it listed at 137k.   There are people who want to buy it, but these are relatively cheap units, and folks who want to live here typically can't get financed.   The traditional buy-and-flip model wouldn't work here as it has in the past.  My intention is to keep it as rental property for the foreseeable future. 

Summary:  Rental property purchased for $50/sq foot, closed on day of auction, no issues removing former owners, property in good shape and occupied. 

this is probably the last post I'll make on this property. 


Anonymous said...

Evils of landlording
origin of Monopoly game

Anonymous said...

Interesting post.
I've always thought of becoming a landlord.
Hope it continues to work out for you; it sounds like a good revenue stream.