This is the tale of a small, two bedroom, one bath rental property in Raytown, MO
. I wrote this email, with some editing done for privacy, to our Ad Astra Realty, Inc property management
team regarding some repairs that were being recommended to one of our owners.
This example shows the power of time when owning rental property.
This home was purchased with cash on 6/17/2011. Then the home was renovated and leased out…all within a period of about 100 days.
The purchase price plus closing costs plus all repairs totaled $39,280.
The home has had an “average” performance since then. It hasn’t been a rock star and it hasn’t been a dog.
There have been 91 possible rental months since the property has come on line. And the rents have never been under $775/mo…we are currently marketing at $825 and have people submitting applications. So let’s say that the home has had 5% vacancy (our MO average). That means that home has been rented 86 months at $775/mo.
Therefore Gross Rents have brought in $66,650 m/l.
In other words, after ALL expenses the home has already paid for itself.
RPR, a pretty reliable price aggregate algorithm (more reliable than Zillow because it uses actual MLS data) puts the price of the house at or about $74,000.
Realest Tax values have the price at $50,000.
And yet, the price tables I have attached tell a more complete story. Pay close attention to the Comparison Plus report and the status; Active, Pending, Sold (in the last 181 days).
And then look at the Statistical Market Analysis report, paying careful attention to the
CLICK FOR DOC ATTACHMENTS
It is my belief that if this house needs a roof and a furnace that yes, that does cost quite a bit of money. Yet, it is money well spent regardless of whether we rent or sell.
Those two items, along with a foundation, are the most expensive repairs a home will need and yet the repairs last twenty years, or so, in most cases. It is highly probable that COMPANY X will dispose of this property before the practical life of either is dissipated to a point of needing re-replacement.
If we were to:
Sell “As Is” the value of the home is $40K m/l
Sell in Top Condition then $80,000 – $85,000 *
*This is with an estimated $37K being spend on upgrades.
In any case, selling as is, selling in top condition or continuing to rent, COMPANY X is winning big on this “average” property.
It is my hope that this will help us all to learn just a bit more about why investing in real estate is such a great, long term thing. And that keeping homes in good, safe, clean order is of importance whether you are renting or selling because either way, the repairs will have to be done at some point. And while the home is in rental service it absolutely should be kept up for the protection of the asset, the benefit of the owner and the benefit of the tenants.