This case study was discussed in our April Monthly Roundup.
Property Details:
- 3 Bedrooms
- 2 Bathrooms
- Sold Price: $190,000
While many people may think that good deals cannot be found in this market we continue to find good cash flowing properties in Aurora. Attached homes continue to provide the best opportunity for cash flow investing in Denver. This deal was available on the MLS and did not require us nor the buyer to spend hours knocking on doors or licking stamps to find a good deal.
Financing
Like many homeowners who purchased their property 5+ years ago, our buyer was in a fortunate equity situation. They were able to use a HELOC on their primary residence to do the initial funding for this property with the plan to utilize delayed financing to repay the HELOC. The delayed financing allows them to refinance 75% of the property value and use that cash to repay the HELOC which has a higher interest rate than the fixed rate mortgage. This strategy allows them to close quicker and with fewer hiccups. You will also notice that because they put at least 25% down they are not required to put property taxes and insurance in escrow which helps reduce closing costs.
Rental Analysis
What is so fantastic about this property is that it is nothing special and it was found on the MLS. The property is capable of meeting the 1% rule, where monthly rents are 1% of the purchase price. The rental rate is accurate and has room to grow as well. The $1,850 represents the section 8 allotment for rent in the area. While some people have disdain for HOAs they do lower your insurance and utility cost and well run HOA can help alleviate many liabilities from a management perspective.
The cash on cash return for this property is a very solid 11% and the cap rate above 8%! Even with the market being very competitive and prices appreciating at historic levels there are still opportunities to be found in Denver. As investors we need to be aware of what the market is giving us and adjust our strategies to take advantage it.
