We’re finally back from our trip to northern Europe: three and a half weeks of travel hacked goodness spent with our good friends from Phoenix. We’ll have some posts and plenty of pictures to share from the trip in the coming weeks.
But we first wanted to tell you about the sale of one of our rentals, that we managed to accomplish mostly via email and digital signatures, from a smartphone.
So we went forward. Before we knew it, we had two cute little brick ranch houses, covering the mortgages and property management costs, building up reserves for future repairs and vacancy, and throwing off a few hundred dollars in profit after all that.
Still, things were bound to change. The tenant on one of the houses got a job offer in Texas into the second year of her lease, in 2016. (And earning more in salary than her weird, blogger landlord, so good for her!) Luckily, she was happy to pay for the rent while the house was vacant and new tenants were found, so we only had to cover the utilities during the vacancy.
A new tenant applicant had a decent salary and passed all the checks from the property management company, so we went forward with a new lease. Everything was going fine until the rent suddenly stopped coming in. The tenant wasn’t returning calls from the property manager, either. Eventually we found out that the tenant had been arrested.
I don’t think it’s prudent to go into the details of all that in this blog post. The tenants could be innocent, for all we know. Regardless, we needed the rent to be paid, and it wasn’t. They weren’t responding to calls or to letters left taped to the front door. The property manager would show up at random times, but no luck.
Eventually we went forward with the eviction process, which I learned can be a long, costly, pain-in-the-ass. The whole thing was delayed further by the holidays, but eventually we regained possession of the home. When we got inside, it was trashed. Garbage everywhere. Furniture and belongings left behind. Holes in the drywall, apropos of nothing. Who knows where the tenants went.
At this point, we had a decision. We’d been paying the mortgage and legal fees for months, just trying to get our house back. We could pay a few thousand in repairs to get it ready to rent again, or decide to cut bait, and sell. Given all the headaches with the property, we decided to sell.
Selling presented an additional choice. We could do a minimal repair to get it roughly back to the condition it was, try to sell for about what we sold it for (our agent estimated $75 to $80k), and thereby lock in a medium sized loss after realtor and transaction fees. Or, we could try to flip it: put roughly $20k into the house to redo the kitchen, floors, painting, etc. and aim for a $110k to $120k sale price, and make a small profit. Still, we could lose even more if our estimates were off.
We opted for the latter, despite the risk. Months of renovations later, we listed. A week before leaving for a three and a half week vacation to Europe that we’d planned for a year, we got an offer a thousand over our asking price.
Thanks to the wonders of modern telecom, we were able to handle everything from signing the purchase agreement to handling inspection items via digital signatures on a mobile phone. As an aside, I can’t say enough about Google Voice and Google Hangouts. For $10 a month through Airvoice, I can call and text all I want, even abroad, through VOIP technology and wifi, and can use the less awesome mobile network when I need to.
The day after we got back from Glasgow and a seven hour layover spent in the Newark United Lounge, we signed the final papers with a mobile notary on our dining room table, and had our funds wired the next day.
For you fellow number nerds, here’s a short summary of our end to end ownership of the house. The purchase and sales prices have been rounded/changed slightly to keep a bit of anonymity for ourselves and the new buyer, but the delta (i.e. – profits, losses, rents, costs, etc. are all accurate).
- Purchase for $80,000 in fall 2014
- $16,000 down payment
- $4,000 transaction costs (loan, inspection, appraisal, etc.)
- $1,000 per month rent
- $80/month property management fee
- $563 monthly payment (PITI)
- $357 monthly cashflow when rented, prior to any repairs/vacancy
End of 2014 figures (partial year):
- $3,600 in rent collected
- $2,030 in mortgage payments (PITI)
- $240 in property management fees
- $575 in repairs & other costs
- Net profit of $755
End of 2015 figures:
- $12,000 in rent collected
- $ 6,800 in mortgage payments (PITI)
- $960 in property management fees
- $700 in repairs & other costs
- Net profit of $3,540
End of 2016 figures:
- $8,900 in rent collected (tenant stopped paying in fall)
- $6,800 in mortgage payments (PITI)
- $1,262 in property management fees + placement fee for new tenant
- $1,300 in repairs & other costs
- Net loss of $462
Partial Year 2017 figures:
- $0 in rent collected (tenant stopped paying in fall 2016)
- $3,400 in mortgage payments (PITI)
- $1,400 in court & legal fees
- $2,500 in repairs, utilities, & other costs
- $20,000 for renovation/flip
- $3,000 credit to seller and $1500 in post-inspection repairs/concessions
- Sold for $124,000: $49,000 back to us after paying off mortgage, some title fees, notary, etc.