Property #3….

We just put property #3 under contract, and hope to close by the end of the month.

This one is a bit of a flier, but it easily has the most upside.  Basically we bought a piece of dirt with a structure on it in an up and coming neighborhood.  Honestly we are probably 3-5 years early on the neighborhood.

We like the property a) It is a 3 bedroom, 2,200 square feet house with an open floor plan about a mile or so from the Dallas downtown, and it sits less than a mile from the medical district. b) It is relatively cheap, at $185K, our payment including taxes and insurance should be around $1,200/M.

Optionality – Def: The value of additional optional investment opportunities available only after having made an initial investment.  The options are what make this property an exciting acquisition.

  1. We bought this property FSBO, we believe if marketed correctly, we could sell the property tomorrow for $225K.
  2. We could do a fix and flip.  The place needs some work, but that $225K number would go up with some improvements.
  3. We can live in it as it is, in fact we will for at least a year.  The place is large, it has an open floor plan and plenty of place to put our things.  The front structure was about 900sqft built in the 20’s, and has an addition in the back providing an additional 1,200-1,300 sqft.  The addition was permitted, but honestly the workmanship is sub standard.
  4. The property is single family but zoned multi family, the layout of the property could easily be turned into a duplex.
  5. We can rent it out as a single family home, If the place is fixed up a little it should bring in between $1,500-$2,500/month in rent.  The low end could be gotten now, the high end would be if we invested an additional $15-20K into doing a few things (floors, reconfigure a couple of bathrooms, paint etc.)
  6. In the future we can build on it.  The property is huge and literally on the top of a hill, and there are a fair number of new modern townhomes and condos going into the area.  We believe we can tear down the existing house and build 2x three story townhouses with rooftop decks that would have an awesome view of the downtown skyline. And then we could sell or lease one or both of the new townhomes (4 more options)
    1. Sell one, live in one
    2. Sell both
    3. Lease one, live in one.
    4. Lease both
  7. The property sits in the middle of 4 properties that another developer was trying to put together and flip as a block.  The 4 properties combined were on the market for $1.3M, or about 66% higher/lot than we are paying . Granted it didn’t sell at that price, but it shows that developers are moving into the area, and suggests we might do well to just live in it/rent it out over the next 3-5 years.  Sitting in the middle, we have the option to buy additional properties and develop them ourselves, or put together all 4 and sell them as a block.

Will let you know how things turn out.

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Net Worth 2015-09

Total Net Worth in September: $320,141 (+$1,242)

I am really happy to have a positive month in the face of a pretty bad stock market.  Plus we broke thru the $320K barrier.

During the month we paid off the 401K loan (+4,555).  We worked hard, our original payoff estimate was November.

Assets: ($0)

No change this month.

Since we are taking a conservative view of property price appreciation, we made no changes to the listed values of our real estate.

In addition we used the same KBB values on our vehicles.

Net Cash Accounts: (-$1,566)

This section contains the balances of all of our cash accounts outside of our rental property.  Emergency funds, banking, savings accounts, HSA, FSA and credit cards. We pay the credit cards off in full every month, but the balances obviously change from month to month.

Our credit card balances were up $1,200. We paid our annual car insurance payment this month with our remaining spending staying about the same.

We used some of our cash out of savings to pay off our 401K loan.

In addition we put money down on Property #3.  More to come later.

Net Cash Rental Accounts: (-$3,385)

This area went down this month for 2 reasons 1) We used some of the money in these accounts for deposit on property #3. 2) We didnt collect either of our rent checks on the duplex until October.

I expect next month will be up in this area.

Retirement accounts: (+$946)

OK, it was a tough month in the markets.

However the loan repayments and our monthly 401K contributions overcame the negative market reactions.

During the month we added to our position in Kraft/Heinz, and began a position in Goldman Sachs. We also added to our position in Kinder Morgan (KMI).

I feel like over time Warren Buffet and 3G will do a good job of increasing profits at KHC.  Great brands, a lot of opportunity to expand overseas, and its a great vehicle for future acquisitions.  In addition, they should get a tailwind from the drop in commodity prices, and we are paid a 3% dividend to wait.  Might add more to this position in the future.

I like GS, we were underweight in financials, and they should benefit from increased volatility in the markets.

Neither GS or KHC has been a very good purchase so far, but I think that they are both excellent long term buys and should do well over the next few years.

We have increased our position several times in KMI, and our last purchase this month was at $25/share.  It closed September right under $30/share.  I think this may be close to a bottom for KMI, the stock is paying a dividend just under 6.5%, and they are committed to increasing the dividend significantly over the next 5 years.

Liabilities: (+$5,248)

We paid off our 401K loan (+$4,555), and beat our original projection by 2 months.

The pay-down on our mortgages will continue to be about $700/month over the course of the year.

Thanks for reading, did you have a good month?