This is an exciting deal analysis because the client used a couple of different strategies to optimize his investment. By using a Nomad approach to buy the home, he gets the benefits of better purchasing terms and the enjoyment of living in a nice house. Once he moves out, using a room by room rental strategy will boost his returns significantly.
- Listen to the podcast “#77: Combining a Nomad and Room by Room Strategy in Colorado Springs” on the Colorado Springs Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
This investor already has a couple of properties in Denver and a long term rental in the Springs. He was living in Denver but really liked the Springs because of how close it is to nature and the affordability of homes. He has a flexible job and decided he wanted his next primary residence to be down here.
His original plan was to do a house hack with roommates, but he ultimately decided to take a Nomad approach and live in the home with only his girlfriend and dog for a year before moving onto the next property.
Investment Property Details
Appealing Features of the Property
This single family home is centrally located and has a nice yard. It’s a 5 bedroom/2 bathroom ranch home with basement. There are 3 bedrooms and a bathroom upstairs, plus 2 bedrooms and another bathroom in the basement. Once he puts a little kitchenette in the basement rec room, it will be ideal for a room by room rental strategy.
How Was the Deal Sourced?
I found this deal on the MLS.
Property Contract Details
The property was listed at $380K, and my client offered $420K. He was competing against an ibuyer, a corporation that purchases properties and rents them out. The seller liked that my client was a person and not a business, but wanted a more generous offer. They agreed to an appraisal gap of $12.5K and limited inspection objection.
The home was well-maintained and no major issues were found during inspection. We estimate he won’t need to spend more than $1500 to take care of some small items.
Property Financing Details
I used our Rental Property Spreadsheet to analyze this deal.
He’s using the property as a regular primary residence this year, so I’m fast forwarding to when he moves out. We estimate that each bedroom will go for $650 with a total monthly rent of $3250.
Property Operating Expenses
Since he plans on staying for the Springs, he’s going to self-manage the property.
Typically, landlords who implement a room by room rental strategy cover all of the utilities of the house. These numbers are based on what other clients spend on utilities in this area.
First Year Returns
By using the room by room strategy, he’ll have an annual cash flow of just over $5K, a cash on cash return of 12.7%, and a cap rate of 6.5%. It’s phenomenal to see a cash on cash return this high when the buyer only puts down $40K, which is about 10%. It’s hard to cash flow in this market with so little down, but the room by room strategy really helps here.
This is a solid property in a convenient location that was in great shape when he bought it. By using the Nomad strategy, he’s able to utilize the benefits of buying an owner-occupied property, namely less money down and a better interest rate. Plus, he gets to enjoy living in such a nice home for the year.
When he moves out, he can expect great returns from the room by room rental model. If he repeats this strategy with his next property, he’ll be able to accumulate an impressive portfolio in just a few years.
Connect with Us
If you’re interested in figuring out how to implement this strategy yourself, reach out to me. I’m happy to sit down with you and put together a plan.