New Rental Real Estate Opportunity!

I got an email yesterday from my real estate agent:

[Meg],

How are you? I don't know if you are in the market right now, but a short sale opportunity on [the street where I own one rental] has just come up. Take a look at the link and let me know if you are interested. If not, just please let me know so I can take it to another client.

Hope you are well.

I'm not "in the market" per se, but I have told him to keep me in mind when special deals arise. My original goal was to buy one property a year until I have 10 by 2017. But I'm on track and was planning to let my liquidity - and my career and income - stabilize before actively searching again.

But I clicked the link and glanced at the listing. It is a duplex right down the street from mine; all of the homes on that street were built by the same builder and sold at the same price and have essentially the same floorplan. So I know the property well.

I bought mine for the builder's non-negotiable asking price of $219,900 last year. Total monthly fixed expenses are $1,790, and the monthly rental income is $2,220. I've never had to make a repair, and maintenance is almost non-existant as it is a relatively new construction. I've also never had a problem getting it rented (there's only been one vacancy since I bought it, which I filled in less than 2 weeks).

The vast majority of tenant drama that I share with you dear readers, for the record, is associated with my other duplex. I have had few issues with this one, and I've appreciated the steady positive cash flow.

So I would be vaguely interested in general if another one on the street came up for sale - but this deal is even better than that. The listed price is $172,000, a full $48,000 lower than what I paid for an identical unit less than one year ago. I checked the county appraisal website, and the tax assessed value of the place is actually over $234,000! This would need to be contested of course, especially if it sells for $172,000, but in any event it is obviously on sale at a discount.

So I responded in the affirmative that I am interested, and asked my agent to verify the list price and the fact that it is fully occupied. He agreed, and said he thought it best to get a contract started and complete due diligence later; it's not going to stay on the market long at this price. I called my mother, father, grandfather, and mortgage banker, in that order.

I ran all the numbers. It's obviously a good investment - I already like the identical investment I made at a 28% higher purchase price. And mortgage rates have dropped as well. With the required 25% down I could get a mortgage at 5.375% - my monthly payment would be less than $730 compared to the $1,155 I pay on the property down the street! And I already own one on that street so I already know the property managers (who I don't employ but could), the HOA rules, the neighborhood, etc.

But that's not the main issue. I considered seriously the fact that I would be stretching a bit to buy this since if all my 6 units were vacant at one time, I couldn't pay the bills with just my salary. But this is highly unlikely. And I have plently of liquidity (albiet non-cash) that I could tap. AND my parents and grandparents are very liquid and would never let me go under in a real emergency (more on that in my next post).

My grandfather was the most enthusiastic when I called for his reaction. He's been doing deals like this - and lending and borrowing money both formally and personally - for decades. Plus he is the reason I have the resources to even be investing at this stage. So his opinion was important to me. If he had hesitated in the slightest about my capacity to handle this financially or in any other way, I would have scrapped the whole deal.

But what he said was this: "I think you have to strike while the skillet is hot!"

So here we go, again.