Real Estate Deal Analysis & Advice

3 Reasons My First (Retail-Priced) Deal Has Become My Favorite

Expertise: Business Management, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate Deal Analysis & Advice, Commercial Real Estate, Personal Development, Real Estate News & Commentary
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Back when I purchased my first investment property, an owner-occupied duplex, it wasn’t some spectacular deal. In fact, I paid retail price for it, the actual appraised value.

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I didn’t use any creative financing strategies, and the seller wasn’t in distress or anything like that. I just took action. Also, as a real estate agent, my strategy on the buy was to represent myself and use whatever commissions I made to help offset the closing costs.

Little did I know that over 30 years later, it would remain one of my best properties. It’s still cash flowing to the point that it’s difficult to think about selling it. So, how did this duplex become such a great deal?

3 Reasons My First Deal Became My Favorite

1. I bought it intentionally.

Since I bought the place with an FHA loan ($67,885 mortgage at 10.5% interest with a monthly payment of $621.15) owner-occupied, it required the least amount of cash out of pocket, and the upstairs unit paid a nice chunk of my mortgage payment. In fact, with FHA financing, I was allowed to count some of the upstairs tenant’s rent towards my monthly income, which enabled me to buy a little more house than I would’ve afforded to otherwise.

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Related: Your Belief That “You Make Your Money When You Buy” is Holding You Back From the Best Deals

Second, the property had below market rents due to its condition, which entailed mostly cosmetic problems like paint and carpet, and since I was a painting contractor, that was right in my wheelhouse.

Next, I was able to deduct half the expenses and/or improvements since half the property was a rental for the first five years I lived there before I moved out and made both units rentals. Keeping this property as a rental, as opposed to selling it off to move, was one of the best decisions I made.

2. I was able to pursue its “highest and best use.”

Eventually, my family was growing, and it was the perfect time to move out of this property. I had just finished renovating a house that my friend and I purchased after it had burnt down, intending to sell it after rehabbing for a nice profit. Well, the real estate market was down, and it wasn’t selling, so I decided to buy out my partner and move into it. Besides, I could live there a couple years, enjoying all the new amenities before renting it out.

As for the duplex, I also had a plan to add value to it in order to increase its appraised value and add more income streams to it. At the time, l was in need of a shop for my contracting business. The ground behind my duplex made for a nice yard while I lived there, but now I had bigger plans for that land: a four-bay commercial garage where I could keep two bays for my business and rent out the other two bays for extra income. I’ll never forget how lucky I was to get those $7 plans for a garage kit approved by the Township without even needing an architect. Talk about good fortune!

3. I utilized leverage.

But the story continues. The garage ran about $30,000 with me doing some of the drywall and labor. I put much of the rest of the costs on credit cards. By this time, I had already refinanced the original $67,885 mortgage to get out of the higher rate. Since I wanted to move my family to a nicer area, I decided to refinance the duplex and garages and use any extra money to help me pay for my next house and just rent out the twin that I have been living in. Here’s what happened next.

Remember the duplex I paid retail for at about $65,000? Well, it now appraised for $175,000, and they allowed me to get a new loan for $137,000 interest-only for 10 years. It was great because not only did I still cash flow out the wazoo, but I paid off all my credit card debt, and I got to move into a great new home that I purchased from a motivated seller.

Related: 3 Valuable Lessons I Learned From Backing Out of My First Fix & Flip Deal

As I look back on the first retail real estate purchase, I realize it was one of the best investments I’ve ever made. It always cash flowed, gave me plenty of deductions, earned me tax-free cash when I refinanced, and increased dramatically in value after building the garages. Even today, it’s still a great property. It never really mattered that I paid retail. The lesson here may be that sometimes it’s better just to take action and get that first deal.

We’re republishing this article to help out our newer readers.

So, how did your first real estate investment go? Do you still own it? Do you—or would you—ever buy retail?

I look forward to reading your stories. Please share below!

Since 2007, Dave Van Horn has served as president and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nat...
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    Jerome Kaidor Investor from Hayward, California
    Replied over 2 years ago
    Actually, ALL of my deals have been retail. Found off the MLS or Loopnet. With bank loans. No fancy financing, no seller-back this or that. And I don’t have an RE license – my broker has made commission on all of it. Still managed to work my way up to 73 units and ample cash flow. Haven’t had a W2 job since 2003.
    Shelby Ek from Allentown, PA
    Replied about 2 years ago
    I love this. I too purchase a 2 unit and lived in one. I bought in 2006 at the height. At one point I attmeped refinancing and it appraised at half the value! Funny enough last year it appraised for well over what I originally bought if for and I was able to take cash out for a new investment. The rent covered my mortgage payment throughout most of the 12 years I lived there. And now it cash flows nicely and is fully rented.
    Fernando Ferreira from Nanaimo BC
    Replied almost 2 years ago
    Thank you for that great inspirational story. I have to agree it is how I am feeling about buy and hold real estate investing. Make sure you have cash flow! Any deal you get on purchase Is a bonus.
    Erik Orozco from Mcallen, Texas
    Replied almost 2 years ago
    Thanks for sharing Dave! I’m lucky to be in a similar situation starting my career in real estate. I bought a 4 plex back in April at 80% of its retail price with rents that were $150-200 under market rent. These are now selling for significantly higher 6 months later. My plan is to finish renovating all 4 units and bring them to market rent, then reappraise the property. I will be relocating to Seattle next summer and I don’t know where to sell and purchase a multi unit in Seattle or keep it let it cash flow nicely even with hiring a PM. Any advice would help thanks again! Erik