BUY: Finding the property
Overview:
The client was pre-approved for $635,000 and was planning to purchase the investment with 20% down. They searched for rentals from as far north as Westminster, east to Aurora, south to Denver and west to Lakewood. The goal was to purchase a buy & hold in an appreciating market where they at least broke even. And, if you’re wondering, they did work with A FI Team Agent!
The deal:
| Purchase Price | $600,000 |
| Seller Concessions | $12,000 |
| Est. Rehab Costs | $25,000 |
| Closing Costs | $5,000 |
| Down Payment | 20% |
| Loan Amount | $480,000 |
| Interest Rate | 7.1% |
| Est. Insurance/mth | $158 |
| Est. Taxes/mth | $183 |
| Room 1 | $850 |
| Room 2 | $900 |
| Room 3 | $1,050 |
| Room 4 | $1,000 |
| Room 5 | $1,000 |
| Room 5 | $850 |
| Total Mthly Income | $5,600 |
| PITI | $3,478 |
| Reserves | $400 |
| Utilities/Expenses | $700 |
| Property Mngt. | $880 |
| Total Mthly Expense | $5,458 |
REHAB: Adding a Bedroom to Increase ROI
Overview:
The house had two living rooms and a large hallway/extension of the utility room that was already plumbed and had electrical. Both of those screamed opportunity to add a bedroom and build out a kitchenette.
Breakdown:
Adding extra bedroom: framing, door install, closet build out, electrical & paint = $4,520
Adding egress window: $5,800
Adding kitchenette: Cabinet, plumbing, electrical, fridge, counter & sink = 9,770
Purchase & installation of smart devices: locks, thermostat, doorbell camera: $1,121
Additional project scope including interior paint, handrail install, misc. repairs: $4,065
The full project took about 4.5 weeks, starting around the first week of March and finishing early April.
All in the renovation came out to: $25,276
HomeCrew Project Management: $5,000
FURNISH: Getting Ready for Renters
Typically, common areas of houses can be furnished for about $5,000 depending on the number of living areas and kitchens. For this property to furnish the living room, dining room, kitchen, kitchenette, supplies for 3 bathrooms and some outdoor furnishings the total came to $6,300.
The client managed the furnishings of the property through a combination of used goods on Facebook Marketplace and new at stores.
The client outfitted the kitchens using the HomeCrew shopping guide for one click purchases at Amazon. This was clutch to make sure all the details were accounted for and they arrived right to the property.
Other decorative items and furniture were purchased at Target, Home Depot, At Home and American Furniture Warehouse.
One thing to note about working with HomeCrew is you can take a loan on the furnishings through your lease agreement.
LEASE: Getting Rooms filled
The client closed on the property March 1st. The date of the closing was key to getting rooms filled BEFORE the first mortgage payment was due on May 1st (one full month after closing). The first tenant moved in on April 1st, three other tenants moved in mid-April and leases for May 1st were signed on the other two rooms.
The client received full rent on the first month their mortgage was due.
We estimate 7 days per room to fill a house, but the time of year can factor significantly. There is much higher demand for room turnover in the summer months than the winter.
In all, it took 14 days to lease up all 6 rooms in the house. The tenants were all working professionals in the mid-20s with credit scores in the 700s. Their jobs ranged from a maintenance manager of a senior living community, marketing director of an outdoor brand, tech developer to employee of the state of Colorado.
MANAGE: Why you hire property management
This house has been a relatively low-key property and saw many successes out of the gate such as filling rooms quickly, a solid group of tenants and only minor issues with the property.
In the first year the landlords were never called about a household repair, but did work with HomeCrew for a maintenance plan for earwigs in the house. HomeCrew’s team coordinated a minor electrical repair for a shorted fridge, replaced batteries for the front door and responded to a call about a beeping smoke detector that needed replacement.
There were two tenant issues that HomeCrew responded to, but did not need to notify the owners. Once a tenant came home intoxicated after a night out and bumped the front door off the hinge, the tenant fixed it. And one of the tenant’s dogs chewed a cushion on the couch and HomeCrew had the tenant repair it.
In the first 12-months there were 4 tenant turnovers. Two tenants had 6 month leases and two tenants gave notice to move at the end of year 1 lease. There are three tenants in the house for their second year. There was 100% occupancy in the first year.
WEALTH: Outlook of the next 10 years
Year one NWROI (Net Worth Return on Investment) was 28% with a CoC (cash on cash) return of 8.23%.
While none of those immediate returns are “sexy” numbers, this client is focused on the long-term benefits.
Through loan paydown (all paid by renters), est. annual appreciation of 4% and annual rent increases of 3% this owner is anticipating a cumulative net worth increase of $648,935 in the first 10 years and in 30 years, once the full loan has been paid off the cumulative net worth change for the property is $3.4M.
Some favors of the market that could significantly improve the ROI over time is if the owner could refinance even by 1 percentage point to 6% increasing their monthly cash flow or the appreciation of the market could be more favorable than 4%, which is very possible in Denver.
Common Questions about Renters: Who would want to live with 6 roommate?!?
One of the most common questions we’re asked is what type of renters do these households attract or who would want to live with strangers.
Some common reasons people seek co-living housing:
– A way to save money on housing
– New to the area, and seeking community
– Recently out of college and used to living with roommates & like it!
– Non-traditional work hours, flight attendants, traveling nurses and grad students for example
– Want housing under $1,000/month
Common personas of a co-living housing member:
– In their mid-twenties
– Employed, professionals
– Credit scores 650+
– Seeking affordability over luxury
