By Sandra Nickel
This week I visited a neat 3 bedroom, 2 bath Midtown Montgomery brick cottage just east of Old Cloverdale. While it was not in move-in condition, it would hardly qualify as “rode hard and put up wet,” either. It comes complete with walk-in closet in the master bedroom and a jetted tub in the master bath!
Hardwood floors are stained and need to be refinished. New appliances are needed in the kitchen. And to become a really attractive rental, the home needs a good paint job. Assuming no hidden issues, I’d guess a renovation budget of $5,000 would handle it all. So for a total of just under $65,000, the house could be yours.
Because it is a FNMA foreclosure, you would be eligible even as an investor for FNMA HomePath Renovation Financing with only a 10% down payment (only 3% if you are going to live there!). Let’s break down some numbers quickly. The cost of acquisition of the house I’m talking about would, therefore, look like this:
Purchase price: $59,900 (assuming you can’t negotiate a better deal)
Total acquisition: $64,900
10% down payment $6,500
Loan amount: $58,400
Interest rate 15Yr: 4.25%
Principal & interest: $439.33
You should be able to rent this property for at least $750.00 per month, giving you plenty of room to hire a property manager if you choose and to build a good cash reserve for the inevitable repairs and vacancies.
So where does the dirt come in? My $5,000 renovation budget did not include what I call “industrial strength” cleaning. That, if you will do it (down-on-your-hands-and-knees behind the commode, for example), you will attract a much better tenant. Folks with high standards appreciate cleanliness and they take care of your property!
The other thing not covered in the $5,000 is landscaping. Right now the yard needs some fluffing up, something else you can do yourself to build equity.
Fifteen years from now, your tenants will have bought you this house. At that point you can sell it to pay for college (or whatever). OR you can just use the monthly income to pay for whatever you’re dreaming about today.
Last month, 96 of the 272 total homes sold in the Montgomery marketplace were foreclosures — over one out of three! That means at least 96 folks looked past the “needs work” label and took advantage of the tremendous values available in our marketplace. As of today, August 21, there are 77 FNMA foreclosures available, most of which you as an investor can buy with as little as 10% down.
Over 200 years ago, poet John Greenleaf Whittier wrote, “For all sad words of tongue and pen, the saddest are these, ‘It might have been.’” Where will you be financially 15 years from now? Will you have capitalized on today’s Midtown Montgomery real estate opportunities? Or will you just be wishing for “what might have been?”
Sandra Nickel has been listing and selling residential real estate for over 29 years, most with an intense focus on Montgomery’s Midtown neighborhoods. Sandra serves on the Mid-Alabama Coalition for the Homeless, the Cloverdale Business Coalition, Historic Southview, the Volunteer and Information Center, Landmarks Foundation and her own neighborhood Garden District Preservation Association.