House #40: The Power House

October 24, 2012 · 18 comments

We haven’t yet closed on the purchase of House #38 (The Rent-Back House), but we just got House #40 approved for purchase and we’ll be closing on it this week:


This is a short sale that we originally offered on back in March of this year. We’ve been waiting over 7 months for the bank to approve the deal, and they just came back yesterday and said, “It’s approved, as long as you can close this week…” And we are happy to do so.

I think we’re planning on holding this one as a rental. The numbers are great for a long-term hold:

– Purchase Price: $35,000
– Repairs: $5,000
– Estimated Monthly Rent: $825-925

The property will easily pass The 2% Rule, and given that it’s small (less than 1000 square feet) and relatively new (built in 1995), so expenses, maintenance and capital costs should be relatively inexpensive long-term (likely less than the 50% average).

The name of the house comes from the fact that there’s a huge power pole just outside the backyard; this will no-doubt make the property harder to sell when the time comes, but given the amazing price we’re picking this up for, we should have no problem flipping it for a good profit when we decide to sell. In fact, if it weren’t such a great rental opportunity, I would be happy to flip it right now.

We’ll be closing on the house on Friday, and hopefully we’ll have the minor repairs completed next week, at which point we’ll start marketing for a tenant.

18 responses to “House #40: The Power House”

  1. Jeff says:

    I have enjoyed reading your blog since just discovering it recently. I am a younger guy (mid 20’s) w/o much cash but am really interested in somehow getting into real estate. I have been to 2 real estate investing seminars and they both have put a lot of emphasis on telling people to get into wholesaling houses since you don’t need any cash up front. I just wanted your take on this and if you think it’s pretty easy to get into. I have mixed emotions of the wholesaling process.

  2. Tom Greene says:

    Congrats, but that looks like a 750 sq ft house. Hope the tenants don’t try to steal electricity! πŸ™‚

  3. J Scott says:

    Jeff –

    Wholesaling is a hard JOB, and not only does it take a lot of work to be successful, it takes a lot of knowledge and skill. Don’t believe anyone who tells you that wholesaling is a great place to start; while it doesn’t take much money to wholesale, it does take the ability to find great deals (good enough that they’re worth rehabbing, plus they have enough extra equity for you to make your profit), the ability to estimate rehab costs, and the ability to market/sell to experienced investors who will be very discriminating.

    If you think you can find great deals, I would suggest taking those deals to a rehabber, and asking him to partner with you and show you the ropes in return for you bringing the deal (maybe he’ll even split the profits with you, but the knowledge should be much more important to you). Once you know the ropes and have some experience, then there will be plenty of rehabbers who will be willing to partner with you and provide the funds for the deals in return for a split of the profits.

  4. J Scott says:

    Tom –

    948 square feet to be exact! πŸ™‚

  5. I don’t think you needed to clarify why this is called the “Power House” the picture pretty much gave it away πŸ™‚

    I have now twice turned down a house because it had a huge electrical tower like this behind it. I am not saying it’s a bad thing, I just was not sure how a potential buyer would view it. I personally would not like it so I thought many could think the same and decided to pass on it. I hope you prove me wrong but then again as a rental I think it’s a different situation.

    But then again you always end up selling everything anyway… πŸ˜‰

  6. JonK says:

    How much would this house sell for if you went that direction?

  7. J Scott says:

    Hey Luis,

    It really depends on the neighborhood and how appealing the rest of the house is. Houses #17 and #29 both had power lines running through their backyards. House #17 was our highest priced sale to date, and we sold it the first day it was on the market for a $33K profit; House #29 sat for a few weeks, and we had several potential buyers who were turned off by the power lines. That one was tougher to sell, but we ultimately sold it for a $33K profit as well. Both were great deals for us, despite the power lines. You just need to find the right buyers and also be careful that there isn’t too much competition in the same price range at the time you’re selling (then your buyers have lots of other choices).

    This one will be harder to sell because there is a big tower in the back (not just power lines), but the selling price point today would be $70-80K, and at that point, there’s essentially no competition, so we probably wouldn’t have too much of an issue if we wanted to sell. I could be wrong though… πŸ™‚

  8. J Scott says:

    Hi Jon,

    Stuff in this neighborhood sells for extremely low prices — if we were to sell today, we’d probably list it for $80K and sell for between $70-75. We’d likely net a small ($15K or so) profit by doing that.

  9. That makes sense and it matches what I have observed. I should know better by now that just because I don’t like something does not mean that somebody else wont.

    I also had negative feelings about houses with steep driveways and I almost did not purchase this house I am rehabbing now because it had a steep driveway. I still went ahead with it and the guy who is buying it from me had no issues with it. So go figure…

  10. forchunet says:

    Wow, just a quick mental calculation and its easy to see how great of a rental this will be. I’m looking to add more rentals into my portfolio the next couple of years since I think housing will pick up here eventually but this house is a no brainer!

    Whats your flip/rental ratio Jscott? Or does it really just depend on what you find?


  11. Naga says:

    Congrats! The house looks great and the numbers look even better.
    Just curious, how do you manage your rental homes? Do you hire a property manager or self manage them?

  12. J Scott says:

    Hi Glenn,

    My flip/rental ratio right now is about 40:1… πŸ™‚

    I’ve held two other rentals in the past, but sold both of them when the first tenants moved out. This will likely be my first long-term hold (at least a couple years). I’m hoping to add a few more, but am really picky about what I hold as a rental — I want it to be small, newish and a great deal.

  13. J Scott says:

    Hi Naga,

    My project manager takes care of everything. I pay him about 10% of the gross rents to deal with finding tenants, managing the property and dealing with any maintenance/repair issues.

  14. Mark n Fl says:

    No way could you build that house for what you’ll have in it. It looks like the perfect rental.

    I worked in the real estate department for an electric utility and saw several studies showing these lines have a minimal impact on the market value.

    That is a transmission line by the way as distinguished from a distribution line. Do you own any portion of the power company right of way?

  15. J Scott says:

    Hey Mark,

    Thanks for the info…I’ve been meaning to do some research myself…

    The backyard is fenced and I believe all area outside the fence (where the tower is) is not part of the property. Interestingly, there is a stake that supports the tower that comes into the yard just a few feet through the fence…I assume there’s a legal easement for the electric company, but I don’t imagine it will impact the property value.

    Thanks again for the info!

  16. Mark Davidson says:

    I saw a lot of people get burned by assuming the cleared tree line represented the extent of the easement OR that the line was in the middle of the right of way. The surveyed centerline in a power company legal description is not always the centerline of their construction.

    If I can ever help you in any way on this issue or anything else, email me.

  17. Congrats! I’m glad to see you get into rentals!

    What neighborhood is that house in?

  18. J Scott says:

    Hey Paula –

    The house in Austell, in the west suburbs of the city…next time you’re in the area, let me know…

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