Sharing my first deal and mistakes, looking to critical feed back

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Sharing my first deal and mistakes, looking to critical feed back

Andy T.Pro Member
Member since 2019 · 17 posts · 6 votes

I'm starting out as a brand new investor. Super excited to invest and have been aspiring to do OOS for a while. Currently in contract for a duplex in Milwaukee for 292k, 73k down, 7.125 interest rate. Using personal savings 20k and heloc 53k, mortgage/pt/insurance 2071, rent 1350 unit 1 (currently rented mtm) second unit vacant and could rent between 1400-1500 for context . Going in the deal I was excited and was going in head first and didn't consider the heloc payment in my calculations, huge rookie mistake. In my mind I originally wanted to do a BRRRR and use the refinance later to pay back the heloc but currently I'm looking to make some small replacements with appliance nothing huge to get back my full initial investment later on. Was stressing and getting cold feet when I realized this information and at the time had already dropped a 10k EM deposit so if I bailed I'm out 10k and no asset but holding on I'm on the hook for a mortgage and heloc payment. Thought to myself ok let's follow through worst case I sell later and break even or make most of initial investment back. I told myself I was willing to take some losses going in this deal and thinking everything through I'm stressing and learning all at the same time. I got excited about the deal because my realtor told me it was a good deal, mistake on my end was just taking his word and running with it without asking questions cause I was nervous and excited about the deal. Horrible combination or emotions to start off with I am aware of that now and missing the refinancing calculation. I was nervous to share my mistakes but I want to own them and seek feedback from the seasoned vets on here. Thank you all that take their time out to respond.

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David Mo
Lender · Milwaukee, WI · Member since 2020 · 109 posts · 115 votes
3y

Hi @Andy T.! 

I'm also an investor and realtor in the Milwaukee area. At that price point in 53207 I'm assuming it's in Bay View? If that's the case at least you're in a great area that continues to see steady growth. 

Some immediate questions I have about this situation: 

1. What's the projected ARV of this property? Did you have this discussion with your realtor ahead of time? If not, it's very important you have a target ARV in mind before going into a deal...especially if you're planning to BRRRR.

2. What work needs to be done to bring the property to that target ARV and what does that work look like? From personal experience just replacing appliances isn't going to add much value to the property. Cosmetic remodels like paint, new flooring, new kitchen/bath will add more value and ideally the units are a bit outdated so it makes sense to do these updates. It seems like your 1500 unit is already in pretty good condition while your 1350 unit has some room for updates.

3. What's your monthly cashflow going to be with the additional HELOC payment?

If the property is in great condition and you have no major capex coming up soon and you're financially comfortable and able to support this mortgage and HELOC until you pay the HELOC off, I would hold onto it. At -200 cashflow per month, that's "only" $2400 per year. Your mortgage has still been paid down more than that and while I don't have a crystal ball and you should not bank on appreciation to make a deal make sense, Bay View is in high demand. Rates are on the decline too. Does your bank offer a free refinance after 6 months? Play around with how refinancing later in this year might affect your monthly payment.

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  • Tyler Haanen
    Rental Property Investor · Milwaukee, WI · Member since 2017 · 60 posts · 40 votes
    3y

    What’s the general area of this duplex? What neighborhood is it in?

    What’s the beds in each unit and square feet?

    Your currently rented unit might be under market depending on those factors.

    Are you not cashflowing with the current rents and projected capex/repairs/vacancy and other expense? How far off?

    0Reply
  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y
    Quote from @Tyler Haanen:

    What’s the general area of this duplex? What neighborhood is it in?

    What’s the beds in each unit and square feet?

    Your current May rented unit might be under market depending on those factors.

    Are you not cashflowing with the current rents and projected capex/repairs/vacancy and other expense? How far off?


     Hey Tyler, thanks for the response. The area is 53207. Each unit is 3 bed 1 bath. The current is under rented by about 150 which I plan to raise gradually to not rent shock the current tenants. And I am cash flowing about 416 with my current pro forma with a to be expected new tenant paying 1500 and other at 1350. 

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  • Tyler Haanen
    Rental Property Investor · Milwaukee, WI · Member since 2017 · 60 posts · 40 votes
    3y

    Okay so that looks to be in the Bay View area. If you’re cash flowing I’m not sure I understood your exact problem?

    Are you trying to figure out how to get your money back?

    Or is the cash flow/cash on cash lower than anticipated? 

    0Reply
  • David Mo
    Lender · Milwaukee, WI · Member since 2020 · 109 posts · 115 votes
    3y

    Hi @Andy T.! 

    I'm also an investor and realtor in the Milwaukee area. At that price point in 53207 I'm assuming it's in Bay View? If that's the case at least you're in a great area that continues to see steady growth. 

    Some immediate questions I have about this situation: 

    1. What's the projected ARV of this property? Did you have this discussion with your realtor ahead of time? If not, it's very important you have a target ARV in mind before going into a deal...especially if you're planning to BRRRR.

    2. What work needs to be done to bring the property to that target ARV and what does that work look like? From personal experience just replacing appliances isn't going to add much value to the property. Cosmetic remodels like paint, new flooring, new kitchen/bath will add more value and ideally the units are a bit outdated so it makes sense to do these updates. It seems like your 1500 unit is already in pretty good condition while your 1350 unit has some room for updates.

    3. What's your monthly cashflow going to be with the additional HELOC payment?

    If the property is in great condition and you have no major capex coming up soon and you're financially comfortable and able to support this mortgage and HELOC until you pay the HELOC off, I would hold onto it. At -200 cashflow per month, that's "only" $2400 per year. Your mortgage has still been paid down more than that and while I don't have a crystal ball and you should not bank on appreciation to make a deal make sense, Bay View is in high demand. Rates are on the decline too. Does your bank offer a free refinance after 6 months? Play around with how refinancing later in this year might affect your monthly payment.

    2Reply
  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y
    Quote from @Tyler Haanen:

    Okay so that looks to be in the Bay View area. If you’re cash flowing I’m not sure I understood your exact problem?

    Are you trying to figure out how to get your money back?

    Or is the cash flow/cash on cash lower than anticipated? 

    I was trying to figure out how to get my money back was my issue sorry for not stating that clearly. 
    0Reply
  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y
    Quote from @David Mo:

    Hi @Andy T.! 

    I'm also an investor and realtor in the Milwaukee area. At that price point in 53207 I'm assuming it's in Bay View? If that's the case at least you're in a great area that continues to see steady growth. 

    Some immediate questions I have about this situation: 

    1. What's the projected ARV of this property? Did you have this discussion with your realtor ahead of time? If not, it's very important you have a target ARV in mind before going into a deal...especially if you're planning to BRRRR.

    2. What work needs to be done to bring the property to that target ARV and what does that work look like? From personal experience just replacing appliances isn't going to add much value to the property. Cosmetic remodels like paint, new flooring, new kitchen/bath will add more value and ideally the units are a bit outdated so it makes sense to do these updates. It seems like your 1500 unit is already in pretty good condition while your 1350 unit has some room for updates.

    3. What's your monthly cashflow going to be with the additional HELOC payment?

    If the property is in great condition and you have no major capex coming up soon and you're financially comfortable and able to support this mortgage and HELOC until you pay the HELOC off, I would hold onto it. At -200 cashflow per month, that's "only" $2400 per year. Your mortgage has still been paid down more than that and while I don't have a crystal ball and you should not bank on appreciation to make a deal make sense, Bay View is in high demand. Rates are on the decline too. Does your bank offer a free refinance after 6 months? Play around with how refinancing later in this year might affect your monthly payment.

    I did not talk to my realtor about target ARV as the roof was just redone and foundation. And it seems in relatively good condition so I totally dropped the ball and had shiny object syndrome. With the additional heloc payment I'm looking at roughly 200 cash flow. So not completely negative. Also to note, another mistake is most of my money is tied into the property and to make those remodels I'd have to pull more out of the heloc which I'd like to avoid if possible but if I learn It's in my best interest then I will. Thank you for your reply David.

    0Reply
  • David Mo
    Lender · Milwaukee, WI · Member since 2020 · 109 posts · 115 votes
    3y

    @Andy T.

    I would have that discussion with your realtor or I'd be happy to have that discussion with you. The fact that the foundation and roof were recently redone is very reassuring. 

    So it sounds like your main concern is that most of your cash is currently tied up in this property and you would like to pull it out and pay back your HELOC asap. Figure out your ARV, the work and costs to get there and use that info to guide your next steps. You're holding a CF positive asset even with a HELOC payment under it...that sounds like a great position to me. Even if your CF is lower now, once your HELOC is paid off and you refinance at a lower rate you're gonna be really happy with it. Just sitting on it the way it is and waiting to build up more cash from your W2/other source of income to do the repairs isn't a bad option either if the ARV isn't there.

    First time investors always make some type of mistake...thanks for sharing yours for others to learn from and thank God it's not a very costly mistake! 

    0Reply
  • Tyler Haanen
    Rental Property Investor · Milwaukee, WI · Member since 2017 · 60 posts · 40 votes
    3y

    It's good you're cash flowing at 7%+ interest rate, where you likely will be able to get a better one after some time. If it is in livable condition, then I say you just rent out both as is. 

    Another consideration you could look at is furnishing one or both of the units for a medium term rental. You could furnish one for 4-5K. St. Luke's is a major hospital very close to that zip code and it often comes up as requests on Furnished Finder (from what I have seen over that past 6 months). St. Mary's by the lake is relatively close as well. There may even be some furnished opportunities since it is close to the airport. 
    If from your research you can get 2,000 a month instead of 1,350, it could be worth that 4-5K investment.

    Obviously doing this as OOS investor will make it a little tougher, but again, something to consider.


    Were you self managing or you have a property manager in place/looking for one?

    1Reply
  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y
    Quote from @Tyler Haanen:

    It's good you're cash flowing at 7%+ interest rate, where you likely will be able to get a better one after some time. If it is in livable condition, then I say you just rent out both as is. 

    Another consideration you could look at is furnishing one or both of the units for a medium term rental. You could furnish one for 4-5K. St. Luke's is a major hospital very close to that zip code and it often comes up as requests on Furnished Finder (from what I have seen over that past 6 months). St. Mary's by the lake is relatively close as well. There may even be some furnished opportunities since it is close to the airport. 
    If from your research you can get 2,000 a month instead of 1,350, it could be worth that 4-5K investment.

    Obviously doing this as OOS investor will make it a little tougher, but again, something to consider.


    Were you self managing or you have a property manager in place/looking for one?

    That’s a great recommendation. I did consider the medium term route and am hesistant starting out. Wanting to get my grip on a long term first, learn and then eventually move in that direction. Everything right now is nerve wracking being honest. 
    0Reply
  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y
    Quote from @David Mo:

    @Andy T.

    I would have that discussion with your realtor or I'd be happy to have that discussion with you. The fact that the foundation and roof were recently redone is very reassuring. 

    So it sounds like your main concern is that most of your cash is currently tied up in this property and you would like to pull it out and pay back your HELOC asap. Figure out your ARV, the work and costs to get there and use that info to guide your next steps. You're holding a CF positive asset even with a HELOC payment under it...that sounds like a great position to me. Even if your CF is lower now, once your HELOC is paid off and you refinance at a lower rate you're gonna be really happy with it. Just sitting on it the way it is and waiting to build up more cash from your W2/other source of income to do the repairs isn't a bad option either if the ARV isn't there.

    First time investors always make some type of mistake...thanks for sharing yours for others to learn from and thank God it's not a very costly mistake! 


    Absolutely agree with paying off the HELOC asap I appreciate the insight as well. And yes, my concern is getting the money back out to pay it back. But might have to sit on it for a bit to let the market do its thing. I am thinking now on what I can do to up the value. Will def talk to my realtor about it and see if we can't figure something out. If not I have your contact. Seriously thank god I'm not sinking on this first deal. It is in a great location right by Home Depot and other amenities.

    1Reply
  • Tyler Haanen
    Rental Property Investor · Milwaukee, WI · Member since 2017 · 60 posts · 40 votes
    3y
    Quote from @Andy T.:
    Quote from @David Mo:

    @Andy T.

    I would have that discussion with your realtor or I'd be happy to have that discussion with you. The fact that the foundation and roof were recently redone is very reassuring. 

    So it sounds like your main concern is that most of your cash is currently tied up in this property and you would like to pull it out and pay back your HELOC asap. Figure out your ARV, the work and costs to get there and use that info to guide your next steps. You're holding a CF positive asset even with a HELOC payment under it...that sounds like a great position to me. Even if your CF is lower now, once your HELOC is paid off and you refinance at a lower rate you're gonna be really happy with it. Just sitting on it the way it is and waiting to build up more cash from your W2/other source of income to do the repairs isn't a bad option either if the ARV isn't there.

    First time investors always make some type of mistake...thanks for sharing yours for others to learn from and thank God it's not a very costly mistake! 


    Absolutely agree with paying off the HELOC asap I appreciate the insight as well. And yes, my concern is getting the money back out to pay it back. But might have to sit on it for a bit to let the market do its thing. I am thinking now on what I can do to up the value. Will def talk to my realtor about it and see if we can't figure something out. If not I have your contact. Seriously thank god I'm not sinking on this first deal. It is in a great location right by Home Depot and other amenities.

    That's exactly how I feel after getting to my first deal this past year. Just going through the process of everything once gives you lessons you could never learn in a book or from a podcast. Honestly, get one, and if it cash flows, you're doing great. The lessons alone are worth a college degree and then some.

    0Reply
  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y
    Quote from @Tyler Haanen:
    Quote from @Andy T.:
    Quote from @David Mo:

    @Andy T.

    I would have that discussion with your realtor or I'd be happy to have that discussion with you. The fact that the foundation and roof were recently redone is very reassuring. 

    So it sounds like your main concern is that most of your cash is currently tied up in this property and you would like to pull it out and pay back your HELOC asap. Figure out your ARV, the work and costs to get there and use that info to guide your next steps. You're holding a CF positive asset even with a HELOC payment under it...that sounds like a great position to me. Even if your CF is lower now, once your HELOC is paid off and you refinance at a lower rate you're gonna be really happy with it. Just sitting on it the way it is and waiting to build up more cash from your W2/other source of income to do the repairs isn't a bad option either if the ARV isn't there.

    First time investors always make some type of mistake...thanks for sharing yours for others to learn from and thank God it's not a very costly mistake! 


    Absolutely agree with paying off the HELOC asap I appreciate the insight as well. And yes, my concern is getting the money back out to pay it back. But might have to sit on it for a bit to let the market do its thing. I am thinking now on what I can do to up the value. Will def talk to my realtor about it and see if we can't figure something out. If not I have your contact. Seriously thank god I'm not sinking on this first deal. It is in a great location right by Home Depot and other amenities.

    That's exactly how I feel after getting to my first deal this past year. Just going through the process of everything once gives you lessons you could never learn in a book or from a podcast. Honestly, get one, and if it cash flows, you're doing great. The lessons alone are worth a college degree and then some.

    I couldn’t agree more. I take it you might listen to the BP podcast and I listen to it religiously and tbh it pretty much hyped me up to just pull the trigger on my first deal (granted the miscalculations were on me, they forewarn due diligence all the time). I’m learning a lot for sure.  It’s reassuring that you’re a newbie as well. Let’s reach that financial independence. 
    1Reply
  • Rebecca KnoxBusiness Member
    Specialist · Milwaukee, WI · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    In my opinion, the price definitely sounds retail which might be difficult to do a brrrrr. Are both the units completely updated? What contingencies did you have on your offer to purchase? Did you require proof of on time tenant payment for the occupied unit? Did you also factor in your taxes? I also factor in city assessed value vs what i am paying because if I am paying more than current city assessed, i anticipate the taxes going up once the city sees my purchase price.  

    Captain Save-A-Home LLC
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  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    3y

    @Andy T. you are doing good. Lower rates and higher rents will benefit you over time. The days of getting your money back are pretty much gone, now it's plain old investing, which means you have a cash flowing asset, that is going up in value, while your tenants are paying down your debt. Good advice from David and Tyler. REI can be painfully slow, when you are starting out you want to see results. Get used to thinking in years, better in decades and that is how you should rate a deal!

    0Reply
  • Jay ThomasPro Member
    Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
    3y

    If you're looking to invest in Real Estate, it's great that you have the opportunity to cash flow at a 7%+ interest rate. It's likely that as time goes on, this rate could improve further. If both of your properties are in livable condition, I would suggest renting them out as is. Taking this route allows you to start making money off of your Real Estate investments quickly and easily. Good luck!

    [email protected]832-889-5607
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  • Travis Biziorek
    Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    It's not clear if you actually closed on this deal or are you trying to figure out how to get out of it and get your EMD back?

    0Reply
  • Leo R.
    Investor · Member since 2021 · 591 posts · 695 votes
    3y

    @Andy T. what's the average monthly cashflow?  

    (including the HELOC debt service, taxes, maintenance, property management, typical vacancy, and all other expenses).

    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    @Andy T. some observations/opinions:

    1) You paid retail, which conflicts with this investor mantra, "You make your money when you buy"!
    NEVER trust an agent as they are often too positive - just to get a commission. Few are investors themselves and think getting 3-5% off asking is a great deal.

    2) Why did you pay a $10k EMD? Always pay the LEAST amount, just for this reason!

    3) NEVER count on lower mortgage rates to bail you out (unless using temporary hard or private money)

    4) Recommend a surprise visit or two to the building, to see how current tenant "lives", to evaluate probable success of MTR or STR before pursuing. If current tenant lives "ugly" or is rude, may scare guests and lead to disaster.

    5) Is Class A, B or C: Location? Building? Tenant Pool?
    Not recommended to use now common 5% vacancy factor (historically 10% minimum) on anything but Class A. Class C should be 15-20% in our opinion, to also cover tenant nonperformance.

    Overall, none of your mistake are catastrophic, but have lowered your profitability.

    [email protected]248-209-6824
    Logical Property Management4.9451 Reviews
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  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y

    Wow I did not expect so many responses. I’m grateful for everyone’s input. 

    @Rebecca Knox it is retail. I was told the owner had replaced the roof recently and redone the foundation. Both units are slightly updated and are in good livable condition. I did not require proof of on time payments. And in the contingencies was 10k em and to waive repairs under 5k. I did factor in the taxes being higher. After seeing this I did ask my realtor to get records for on time payment. 

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  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y

    @Marcus Auerbach thank you. Im definitely going to do better next time. I couldn’t wait to get my first deal so I missed so many things. I agree on the thinking long term because one of my issues was thinking in short of how to get my initial investment back but that can wait I’ve def got time. 

    1Reply
  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y

    @Jay Thomas that is true and a solid point to be able to cash flow at 7% I’m definitely taking this advice. I appreciate your response 💪🏼

    0Reply
  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y

    @Travis Biziorek I’m about to close on 2/28. And I’m sorry for not being clear. I was more so venting how I miscalculated getting my initial investment back because when I went in on i didn’t factor in paying back the heloc because this deal doesn’t require much renovations that would up the value enough to pay back the heloc in 6 months all at once. Where now I’m just paying it down over time. 

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  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y

    @Leo R. currently without calculating the heloc payment which I plan to pay separately it’s about 342 

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  • Andy T.Pro Member
    OP
    Member since 2019 · 17 posts · 6 votes
    3y

    @Drew Sygit I’m duly noting everything you said. I paid 10k cause supposedly it would make my offer look stronger and stand out. Which it did but I def learned that 10k really does put me on the hook incase I do wanna back out. Lesson learned. Area is b-c loacation. Decent tenant pool. I appreciate the reassurance. Worst case I was thinking I’d sell it if it’s too much of a headache and start over. 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Andy T.

    Some things to further hone your skills:

    1. Don’t believe realtors hype - many think market only goes up and every area is a great area. Trust but verify anything they say

    2. Know your numbers - looking at what you wrote this asset will most likely not cash flow once you consider your expenses.do you have reserves to cover the shortfall?

    3. What is your exit strategy? When modeling an asset you should model based on multiple scenarios including your preferred exit strategy

    7e investments53 Reviews
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