I’m going to break down the numbers for you on House #1:
Purchase Price: $100,000
Down-Payment Needed: $0 (Home Equity Loans do not require a down-payment)
Closing Costs: ~$1,000 (This is to pay for the process of the loan which requires underwriting, an appraisal, an attorney, etc.)
I took out a Home Equity Loan on the property to pay off the existing mortgage and to buy out my brother and his wife.
Once I gained control of the property and gutted the entire thing, I spent about $20,000 on renovations.
Total Up-front Costs To Purchase: ~$21,000
Luckily, a Home Equity Loan (very much like a mortgage) can be paid out over an extended amount of time, on a month-to-month basis.
$100,000 @5.75% over 20-years = ~$700/month
Homeowners Insurance @ $1,300 = ~$110/month
Property Taxes @ $2,200 = ~$185/month
Property Management @ 8% of Gross Rents = ~$125
Maintenance @ 6% of Gross Rents = ~$95
Capital Expenditures @ 6% of Gross Rents = ~$95
Vacancy @ 6% of Gross Rents = ~$95
Total Monthly Expenses = ~$1,405
Total Monthly Income (From Rents) = $1,575
Monthly Profits = $170/month
Annual Profits = $2,040/year
I will explain all of these in detail in a future post but, in short, these are all of the expenses that I deem necessary when analyzing and purchasing a property for investment. You need to protect yourself and always prepare for the worst.
I will always post the above when I purchase a new property!