How much did you spend on first deal?

15 Replies

Just trying to get a feel for what price brackets most started out in? And how did you finance your first deal? Also, is it possible to fund a deal with an IRA and not be penalized for taking money out?

Between credit, IRA, cash and a partner I'm hoping I can find a deal that will work out. I plan to start small. Even if I don't make a devent amount of money I will go through the motions and learn for the next deal. But being on the plus side is always good too. Also, do you guys prefer fixing up rentals or fixing flips? I've heard rentals are the way to go but I kinda like the flip idea and move on. Not sure I'd like being a landlord, but never been in those shoes either!

My first deal was a flip I purchased somewhere around 63k and I put something like 18k into it. I sold it around 115k. The exact details are a little fuzzy at this point.

I don't know what houses go for around you, but my advice is don't start on a really small deal. Since there is less profit that is less margin for you to mess up and not end up loosing money. On my deal, I was an AC and a roof away from not being very profitable. Unless you are really confident on your ability to find problems and estimate repair costs, I'd aim a little higher so you can absorb the unexpected without making your first deal a loss. Also make sure you first one is a home run deal and not a marginal deal. Again, you need a good cushion to make mistakes and learn the hard way. Most of us have had to learn that way.

As for flip or rental... I love the rehab of flips because we finish them out better.....but I hate the sales process, the back and forth negotiation..waiting on pins and needles for inspections and for it to close.  I prefer cash flow over one time checks too.

Welcome to BP, Thomas.  What you do in RE is totally up to you.  Every investor is different, so you will find a plethora of opinions here on Flipping & Land-lording as well as many other strategies.

I am a land lord and I love it.  I want passive income rather than chucks of cash depending upon how fast I'm working to find more deals repetitively.   This is primarily because my job takes me away for days at a time which would really affect my abilities to keep things going I think.

My first "deal" was my current house. It was an FHA loan. They only require 3% down but they allow that 3% to be a gift from someone else. I was quite poor at the time and had a great brother. You have to state that you have not agreed to pay the gifter back in order for that scenario to work. I had not agreed to pay him back but things have come around full circle so that we are even coincidentally. So, that house was $54,900 with zero down in my own money. I also had to be a home buyer who did not have a mortgage in the past 2 years to qualify.

My second deal was a duplex that I was going to buy and hold with tenants.  The seller was asking $42,500 and I got him to accept $37,500 on the sole explanation that it was what I needed to make my cash flow work out and still be little out of pocket.  I had 10% down plus closing costs so that one took about $6000 to close.  I actually put 20% down on that deal by taking a second loan from the same bank using my paid off car as collateral.  I paid that loan off 3 months later and have been letting the tenants pay the rest off.  

I inherited 2 great tenants who always pay on time and are both single mature adults who give no one any problems.  I love real estate and am looking forward to having enough multi-family rentals to take over my expenses.  Whatever route you take, it will have to be what you are personally comfortable with.  Look around BP blogs and forums.  There is a ton of education here on almost any technique in which one might be interested.

Good luck.

Hi Thomas, I guess it depends on what your goals are and the location you're looking at. Personally, I have the mentality of a renter and a flipper. What I mean by this is, I look for a place with great cash flow as a rental. (between 4-6k a year) however, i like to buy places that need work, so should my rental not produce the Cash flow i need, i can sell it as an exit strategy. In addition, buying a fixer-up and renting it out, 9 time out of 10 the property will increase in value. I then do a cash refinance and use that money to buy my next place. In regards to a price bracket, it all depends on your level of risk is and what you can afford. For example, here in Chicago, i just put an offer down on a 1 bedroom fixer-up. it will cost me around 30k (down payment, closing and fix-up cost.) i can make $4000 cash flow renting it, or sell it with a 15-20k profit. I personally like the monthly income..... This is especially true if you don't have a W2 to pay the bills....

Hey Thomas,

To address the IRA question, yes and no. You can invest your self directed IRA in real estate if your custodian allows it, but you cannot personally benefit from the investment. Only your IRA can. Meaning, you cannot invest your IRA money in a house and put the profit in your savings account. All profit has to go back into your IRA. You could invest your IRA money with a partner who is not related to you, but you cannot invest with family or combine personal funds with IRA funds to invest. It's a terrific strategy if you are looking to grow your retirement fund more than 1.5% or whatever it's getting, but not if you are trying to grow usable capital.

Rent vs. Flip depends on your preference. I want passive income, but I don't really want to be a landlord. I've done it and it's not terrible if you do it right, I'd just rather get to the point where I don't have to deal with it. I am flipping my way to having enough capital to buy a larger multi-family unit(s) that I will have managed. 

My first deal was a live-in flip that I bought for around $70,000 (which can buy a pretty decent house in my area). I flipped it (doing most of the renovations myself) over a 2 year period. Rinsed and repeated, now I'm on my third (with a couple of rentals thrown in there at one point). If you like flips, do flips. Maybe pickup a few rentals along the way so you can have steady income and a little insurance for when the market slows down.

Originally posted by @Eric Thomson :

Hey Thomas,

To address the IRA question, yes and no. You can invest your self directed IRA in real estate if your custodian allows it, but you cannot personally benefit from the investment. Only your IRA can. Meaning, you cannot invest your IRA money in a house and put the profit in your savings account. All profit has to go back into your IRA. You could invest your IRA money with a partner who is not related to you, but you cannot invest with family or combine personal funds with IRA funds to invest. It's a terrific strategy if you are looking to grow your retirement fund more than 1.5% or whatever it's getting, but not if you are trying to grow usable capital.

Just to clarify, you can use IRA and personal funds or a family member to invest with you in an investment property, the key in that scenario is that everyone involved has to treat the investment by the same rules as if it was all IRA money, and it has to be structured correctly.

For example, for an investment property costing $100,000, you and your IRA can purchase the property as tenants in common, $50,000 from your IRA and $50,000 from your personal account, or however you want to work out ownership percentages. Like I said the key here is you still cannot personally benefit from any of the property, regardless of how large or small the IRA ownership stake is.

Our first house was a "personal" property used with a va loan so we out no money in it other than 1k ish for inspections / misc. it was a fixer upper so we put about 12k fixing it up. When we were transferred we rented it out :)

Our first pure rental was bought with 20% down and we put about 22k down ;)

First deal was a little trailer in a family park.  Whoa that was a long time ago!  Bought for cash, sold on paper.  Did 2 of those and learned a ton!  Those were good starting points for us, as it's as easy as buying a car.  We then owner-occ'd a couple houses we turned into long-term rentals.  Then straight to seller-financed 7-unit and 10-unit buildings.  Apt building owners are familiar with creative strategies and the competition to buy them is less!  Good luck!

FIRST DEAL = $28K

My target was 12% cash on cash returns for however much money I put in the deal (1% a month) going in. So for my first deal I put $28K into it (20%DP, CC and $9K in repairs) on a foreclosure townhouse I paid $78K for, appraised at $90K on day 1 and appraised at $121K after repairs were complete in Hampton Roads area of VA. My target cash flow was $280/mth (1% a month) after PITI, PM and 10% reserves - I've exceed that! Just rinsing and repeating now... Good luck!

Wow!

You guys have done great! I really appreciate the information.  It appears I may have a little more saving to do before I get my feet wet!

Originally posted by @Thomas Berridge :

... Also, is it possible to fund a deal with an IRA and not be penalized for taking money out? Between credit, IRA, cash and a partner I'm hoping I can find a deal that will work out. I plan to start small...

Thomas, you could utilize funds in your IRA only if you don't take a distribution and invest inside of your retirement account. In order to do that you will need a Self-Directed IRA or 401k. In this case your retirement accounts owns the property, not you. All of the related expenses must be paid from the IRA and all of the income must go back into IRA. You don't have to pay all cash and could finance property inside of your IRA or 401k, but because you are not allowed to provide personal guarantee - you have to use non-recourse financing. That will require about 40% down.

Of course you can pull your retirement dollars out as early distribution, but the result of that will be taxes and penalties (combined can be as much as 50%), which make it a very poof financial choice in my opinion. 

Another thing to consider, when you buy investment real estate in your IRA you don't get any tax benefits such as depreciation. Therefore if you have personal savings often it makes more sense to purchase rentals in your own name (outside of an IRA) and use your retirement dollars to invest in other alternative assets such as trust deeds, etc.

But remember that everyone's situation is unique, so be sure to educate yourself on the subject and have experienced expert in your corner.

$51k cash. No repairs. Owner financed at 9%, $5000 down, 16% ROI. I like doing those :).

I bought my first (and still only) rental property in Feb of 2009 for $19,000 cash that I had been saving up for a while.  A small 700ish sq ft 2 bed one bath house that I rented out 2 weeks later for $450 a month and have had the same tenant in there since.  I had unfortunately, not been able to build up much savings since then, but I hope to have enough to buy a second similar property by the end of this year.  Hopefully with two rentals in my portfolio I will be able to buy a third one sooner than 6 years lol.   

My first deal was a JV, 30% 70% on a flip. $60K was my required contribution in the deal. So I used my savings of $12K, borrowed the rest through LOC, and family. Got a return of $28K after 9 months.

3 bed, 2 bath rental.  Bought for $82000 around 2002, with $8900 down on a 8.5% mortgage. Refinanced later at 6.875%, with $1822 in closing costs.  Sold for $114900 in 2003 with a check of $15031.29.

First personally owned rental was 25% down on a 210k property + 10k in repairs. Its worth about $240k now and I owe about $150k at 4.875%. Second was 5% on a 290k property and with another 10k in repairs, Its worth about $330k and I owe $275k at 4.25% 

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