Well, it’s been a while since I wrote my first article in this series. My journey to financial independence took eight properties, but my journey hasn’t stopped there. To bring you up to speed, my first property was a 2-bed/2.5-bath townhouse in Florida with a one-car garage and fenced-in yard. It rented immediately (woohoo!) and has had incredible cash-on-cash return, despite a few hiccups here and there. Let me tell you about the adventures of this unit before I talk about my second.
First Property Lessons Learned
Well, this wasn’t that big of a place, and I’d already inspected/fixed it up a bit. You wouldn’t think you’d need a large repair budget, right? WRONG. Here’s a list of a few things I’ve needed to repair in this unit alone the past two years:
- AC repair: $175 with some leak.
- Breaker replacement: $900
- New thermostat: $135
- Fence repair: $250—it fell right over!
- Master bath leak: needed new cartridge; $268 for plumber after a contractor quoted me $1,100 for pipe issues
- Master bath leak: actually didn’t need a new cartridge; it needed new piping for $1,100. This contractor originally said the pipes were the issue. I hired a plumber for a second opinion and went the cheaper/simpler route and was wrong. I came back, apologized to the contractor, and they did a great job. I’m happier with them overall because they would come back if the issue hadn’t been resolved, whereas the plumber said they’d still charge me to come look at the issue they just tried to fix! Uncool.
- AC issue again: $140 a year later—seems to be good to go now.
- Kitchen faucet leak: $30
- Pest control: $250 for an entire year—this cost is now tenant’s responsibility but no issues since then anyway.
Looking at it now, it doesn’t seem TOO bad, but that’s still an average of $1,600/year in repairs alone so far. Luckily (and knock on wood for this one), most of these were in the first year, and it seems everything has settled for now. Oh, did I tell you this property still cash flowed over $300/mo with this large repair budget? Cha-ching.
Getting My Second Property
All those repairs didn’t scare me off somehow. I had the bug and needed to keep looking for more properties. Finally, in December 2015, I found another property nearby in Colorado! Little did I know, this one would be a ride. The Colorado market is HOT (as in, cash-offers-$20K-above-asking-price-for-$500K-houses hot). I found this little 600 square foot condo down the street from me for $80K. It was a little shabby, meaning there wasn’t much competition for it and my original offer was quickly accepted.
- This is pretty much a studio, although it was advertised as a one-bedroom because of some janky bedroom setup (see last picture with room divider). There was a wall separating the original bedroom area from the rest of the condo, but it had been taken down and you could still see the imprint on the ceiling.
- This is a garden unit, meaning it’s about half underground.
- What you can’t see in these photos is the floor coming up because the prior owner self-installed the laminate. Every plank ended at the same length across the floor, which caused it to bow upward. Turns out garden units aren’t good candidates for laminate, so carpet it is!
- This unit doesn’t have AC. That’s easily fixed with a portable unit, though.
- HOA quality was OK but not great when I acquired this property. Shortly after, a new management company took over (which is VERY good news, as they’ve been doing amazing things), but our dues went up significantly. It’s a con, but also a pro because the community is on a huge upswing. I calculated extra conservatively since the HOA was a variable.
- It had some piping problems in the past. This was the HOA’s responsibility, but history repeated itself after a year of ownership. This was a minimal headache, as the HOA put my tenants in a hotel while they (slowly) responded to the leak. This also happened over the holidays, so I’m lucky my tenants were even home to catch it.
- This is in a stellar location. It’s right across the street from public transportation, nearby a major interstate, and right between Boulder and Denver, attracting many renters.
- HOA dues weren’t out of this world. In this area, condo/townhouse HOA dues below $250/mo are hard to come by. When I purchased this condo, the dues were $180 or so/mo since they calculated it by square foot of the unit. The dues include ground care, water, pool, recreation center with free wifi, gym, playground, BBQ area, and more.
- I asked for my closing costs to be paid in my offer, and it was accepted.
- The furnace was maintained by the HOA for this particular property, and the appliances were fairly new.
- The property came with all the furniture in it, as well as the washer and dryer.
- This property cash flowed over $500/mo at market rent prices when I first acquired it. This has gone down since the HOA has gone up, but I’m still well into the $400/mo range.
- My real estate agent said this property could rent for $850/mo—but little did I know after market research I could get over $100/mo more than that.
Two Years Later
So far, this property hasn’t been too bad in terms of repairs, although I’m including the remodel in here, too.
- $4K or so worth of remodel (carpeting, paint, slight demo for layout, updated fixtures, room divider, etc.)
- $180 for light fixture/bathroom repair
- Ceiling leak taken care of by the HOA
The property had plenty of interest both times I’ve listed it, and I was able to have consistent, quality tenants placed. It wasn’t too hard a decision to choose to sell it, though. The Denver market has appreciated considerably the past two years. I’m able to pay off real estate-related debt, cut down on my liabilities, and increase my cash flow in the absence of management-related tasks since I self-managed. A week after it was on the market, I had an offer above asking price. I’ve chosen not to pursue a 1031 exchange at this time, but haven’t ruled it out entirely.
So, that’s it! Acquiring this property wasn’t so exciting. It was a little run down and a lot of people overlooked it. I got financing, closed, and had it rented out quickly. It wasn’t very labor intensive, but with the HOA now being near $215 after two assessments, I’m ready to get out. Admittedly, the HOA management is doing a lot of great work for the property, but I no longer need to worry so much about varying HOA dues cutting into my cash flow, filling a condo between tenants, etc. and will cash flow just as much with the capital gains (minus tax) anyway. Same cash flow, less work—at least for now.
How do these numbers look compared to the investments in your market? Newbies: What experiences have YOU had with your first few deals?
Be sure to comment below!