To start I want to talk about the homes that I have already sold in the last two years in Ypsilanti that make particular financial sense to a smart Investor that is looking to purchase the home and rent it out anywhere from 2-5 and then list and sell the home. Here are the names of streets and a little info about five specific homes I want to talk about today
$25,000 four bedroom home rented at $1,000 per month needed a new kitchen and some carpet
$26,000 three bedroom home rented at $9000 per month no work needed besides paint
$21,000 three bedroom home rented at $850 per month new kitchen and new hot water heater installed
$30,000 three bedroom home rented at $900 per month no work needed
Now, lets say that you got a typical mortgage on one of these homes with 20% down in this case lets round that number up to include closing costs and go with $7,000 down. Also, lets say that you need to put $2,000 in to work on the home for improvements so up front you will be putting in $9,000 and mortgaging around $20,000. Lets include your monthly taxes (by the way the taxes in Ypsilanti Twp are around $1,000 per year at this range and the city would be at $2,000 so we will average the two), and your homeowners insurance into the mix just to make sure we are accounting for all costs:
$20,000 30 year mortgage at 4% $95.00 per month
$900 per year for homeowners insurance $75.00 per month
$1,500 per year for property taxes $125.00 per month
For a total of $295.00 per month
And lets be conservative and say that you rented the home out for $800 per month over the course of 5 years. We will also account for an extra $1,000 per year to account for any repairs on the home that might come up for a total of $5,000.
$800 X 60 = $48,000 - Total Mo Payments 17,700 - Repairs $5,000 = 25,300
So over the course of 5 years you will make roughly $25,300 in income when all accounted for just to review that is an extra $5,060 per year. At this point you could have contributed all of your earnings to your mortgage payments and paid off the mortgage on the home. If you have not done so you are still in a good position because this is where it gets interesting.
Lets assume conservatively that the house prices in your neighborhood rise just an average of 2% every year that you are in ownership of your investment. And lets say that you paid $25,000 for the house but got a deal and the house was assessed at a value of $30,000 when you bought it, and the home is now worth $35,000 (this is very conservative I would imagine that the gain would be closer to 25% in the next 5 years). At this point you list and sell the home there are some commissions involved and you end up selling it for $30,000. if you have already paid off the mortgage then you just made $30,000 congrats :D. If you have yet to pay off your mortgage you will do so and gain about $12,000 on top and add that to the $25,300 you gained over the last 5 years.
Lets go back to your initial investment of $9,000 and see where we ended up in terms of ROI. So, obviously this is a serious investment and takes time patience and often frustration so lets say that you spent 100 hours per year dealing with this home and since time is money lets quantify that at $20.00 per hour of time spent making this investment work. So, we are going to quantify that time spent as an additional $10,000 expenditure. So, to review we have invested a total of 46,700 into this home whew thats a lot of money. But lets look at what we gained as well $48,000 in revenue over the 5 years + the $35,000 we sold it for = $83,000 for a net of $36,300!!!!!! By the way that is a 400% return on your investment in 5 years
Lets look at another 5 year investment of $9,000 that will again that much.........oh what there isn't any oh yeah thats right I forgot. A CD would currently net you $9,000 investment about $500 over 5 years.....$500
