We bought our first rental!

21 Replies

My partner and I began discussing Real Estate early this summer.  Originally, I became interested in RE after hearing about friends who were successful.  My first "Youtube" search led me here, to Bigger Pockets.  After finding this site, I became addicted.  I've been "lurking" and reading your posts, and listening to the podcasts daily.

Both my partner and I took out HELOCs on our current homes (mine is an owner occupied duplex that I rent to my brother... another story for another time). We have an LLC in place, our EIN set up, a bank account, and an operating agreement. While working on these items, we have been searching for homes to purchase. We tried "driving for dollars" a couple times and actually had decent leads come out of it, but did not end up making a purchase as the numbers did not fit. We have been monitoring auction websites and this is where our first deal came from.

Here is the break-down:

  • 3 bed, 2 bath vacant home
  • Located in a fairly remote location, however there is significant employment within 20 miles
  • Manufactured home on a foundation
  • Repairs needed are mainly cosmetic... some flooring and paint and a little work in the bathroom.  Landscaping, and there is a massive barb-wire fence around it we need to remove.
  • We found comps in the area for around $60,000-$80,000 (we are newbs so it was difficult to pinpoint exactly where we should be... we played it safe)
  • Our plan is to rehab and rent
  • We believe we can rent this for at least $900 per month.  There is nothing available to rent within 20-30 miles of the home... We are going to pre-market this at $1100 per month and see what happens
  • Our max price we were willing to go at auction was $34,000 (based on 60,000 * .7, - 8K estimated repairs), ($900 rent*50 = $45,000 - $8k = $37,000)... We landed on $34,000 because there are some unknowns
  • We won the house for just over $21,000... We consider this an immediate $13,000 profit!

We are hoping to close this week (as soon as possible) and get into the house to put together a good scope of work and get this house cash-flowing as soon as possible. Once the house is in good condition, we will take out a HELOC on it and do it again!

BONUS:  While bidding, we noticed that the house comes with two identical lots next to it... We are considering removing trees, installing well and septic, and placing manufactured or mobiles homes on these for rent as well.  Thoughts?

Any feedback or words of caution are greatly appreciated.  We are excited to finally have our "feet wet"

Bernie Tobin

Great Lakes Real Estate and Rentals, LLC

I am confused about what your numbers:

Are you saying the house cost $21,000 and it needs only $8,000 in renovation making the total cost $29,000.   If so  Well at $1,000 rent that sounds excellent.  Thats more then the 2% rule, more then 3%. So no problem just a big WIN if that's what you are saying.   

About the barbed wire fence first see if there is any way you can utilize some part of it like keeping the back of it or the sides of it and landscaping in front of it.  I would think about it before I take the whole thing down.   I love fences.

About your  extra lots you have to get a prices on pre fab houses and mobile homes and the cost of wells and septic systems  before you know whether it makes sense to develop them.  Once you know what the rental situation or what you can sell them for then the decision will be easy

Just closed my first cash flow deal as well. This was a classic cash flow deal. My first cash flow deal after 33 wholesale deals.

So here my first cash flow deal

Purchase Price: $ 86,000

Rehab: $ 6,000

All in the deal: $ 92,000

Appraisal after refi: $ 140,000

Refinance: $ 105,000

Rent: $ 1350

So all done Zero in the deal. Net cash flow $ 480/month.

Now 19 more to go can't wait to speed up the process.

Vince.

great numbers Vince. Congrats and keep going. 

Hi Bernie.  That is one of my favorite things to do (buying a home with 1 or 2 acres, selling the home and keeping the lots)  and that is exactly how I got into the mobile home business.  I bought a small home (assumed the note) with the expectations that the two lots that came with it could be developed.  The lots were owned by a mining company out of New York.  I called the president and asked him how much he wanted for the 1/2 lot that could be subdivided into two lots.  I bought it for $1,000.  I sent him the check and I didnt hear from him for 6 months.  I find out that he went to Europe for 6 months on business.  He got back and I received the deed.  I now have 2 mobile homes on those two lots for $1K.  Then I sold the home.  This is fun stuff.  

@Dave C.

@Payton Abernathy

Congrats on your first rental!

Tracie Davis

    congrats on taking action! You will learn so much! This will give you confidence and skills to buy more!

    Stephen Hundley

      Originally posted by @Barbara G. :

      I am confused about what your numbers:

      Are you saying the house cost $21,000 and it needs only $8,000 in renovation making the total cost $29,000.   If so  Well at $1,000 rent that sounds excellent.  Thats more then the 2% rule, more then 3%. So no problem just a big WIN if that's what you are saying.   

      About the barbed wire fence first see if there is any way you can utilize some part of it like keeping the back of it or the sides of it and landscaping in front of it.  I would think about it before I take the whole thing down.   I love fences.

      About your  extra lots you have to get a prices on pre fab houses and mobile homes and the cost of wells and septic systems  before you know whether it makes sense to develop them.  Once you know what the rental situation or what you can sell them for then the decision will be easy

       You are right on the numbers... We consider it a steal.  I've posted a teaser ad and have already received interest in renting it at $1100... We will see how it goes after we finish rehab.

      Thanks for the idea on the fence... Perhaps we can remove the barb wire section and place new caps on it.

      Thanks to all...

      Vince.  Congrats!  Sounds like a great deal.

      It all sounds too good to be true.  Definitley keep the fence.  Yes I was also thinking you can remove the barbed wire and you can landscape it. The bushes/trees will grow in no time.  What can be nicer.

      Congrats Bernie Tobin Definitely sounds like a steal. About how many mobile/manufactured he's do you plan on putting on the additional lots?

      Thanks Larry, Tracie, Steven, & Bernie!

      I just started work on it today and man is it exciting!

      Might even be able to keep rehab under 6k - fingers crossed...

      preciate all your guys' input - this is what keeps me going.

      Best of luck to you all.

      Vince

      This was very helpful to me. Thoughts any one.Trying to establish what my next move will be. 3 bed 2 full bath. Quiet neighborhood by running trail. Bought my house last year August. Conventional loan at 5.2%(know kinda high) appraised 96000.00 86000.0 the loan was for about 81000.00 over all good condition Needs minor work in kitchen and bathroom. Trying to decide how to move forward for my next property move out and rent after repairs. I believe I should refinance FHA for a low interest rate. I guess I'm just trying to get started. I think Should I work up the #s to see how it would work as a rental.
      Originally posted by @Vince Dyer :

      Just closed my first cash flow deal as well. This was a classic cash flow deal. My first cash flow deal after 33 wholesale deals.

      So here my first cash flow deal

      Purchase Price: $ 86,000

      Rehab: $ 6,000

      All in the deal: $ 92,000

      Appraisal after refi: $ 140,000

      Refinance: $ 105,000

      Rent: $ 1350

      So all done Zero in the deal. Net cash flow $ 480/month.

      Now 19 more to go can't wait to speed up the process.

      Vince.

       Where did you find this deal?  Did you locate from one of your sources or buy from another wholesaler?

      Originally posted by @Dan D. :
      Originally posted by @Vince Dyer:

      Just closed my first cash flow deal as well. This was a classic cash flow deal. My first cash flow deal after 33 wholesale deals.

      So here my first cash flow deal

      Purchase Price: $ 86,000

      Rehab: $ 6,000

      All in the deal: $ 92,000

      Appraisal after refi: $ 140,000

      Refinance: $ 105,000

      Rent: $ 1350

      So all done Zero in the deal. Net cash flow $ 480/month.

      Now 19 more to go can't wait to speed up the process.

      Vince.

       Where did you find this deal?  Did you locate from one of your sources or buy from another wholesaler?

      Originally posted by @Ricardo Miranda:
      Originally posted by @Dan D.:
      Originally posted by @Vince Dyer:

      Just closed my first cash flow deal as well. This was a classic cash flow deal. My first cash flow deal after 33 wholesale deals.

      So here my first cash flow deal

      Purchase Price: $ 86,000

      Rehab: $ 6,000

      All in the deal: $ 92,000

      Appraisal after refi: $ 140,000

      Refinance: $ 105,000

      Rent: $ 1350

      So all done Zero in the deal. Net cash flow $ 480/month.

      Now 19 more to go can't wait to speed up the process.

      Vince.

       Where did you find this deal?  Did you locate from one of your sources or buy from another wholesaler?

       What City is your Rental in ? If you don't mind me asking. I would love to aquire something similar. 

      My first rental is in the southern suburbs of Chicago.

      I have another one under contract, and a potential flip on the way as well.

      These are all MLS deals! May seem crazy, but they're out there... just gotta keep lookin.

      Lining up funding for the flip... anybody know anyone willing to fund at 12% annualized?

      This project will only require about $130k total investment (and whether it's for this one or the next it never hurts to have extra funding ready to go : )

      I'm assuming the numbers in California will likely be higher, but as long as the ratios are similar I think the numbers will still work.  

      Good luck guys, and don't stop looking!  Cuz they day you do is the day your deal will come and go... real estate gods are sick like that, so always stay vigilant.  8 )

      As an update on our first property:

       - Total investment was right around $29,000 as expected (lucky guess for first timers???)

       - The area we purchased the property in is a bit depressed, but we are getting $875 per month and have a renter moved in and paying (on time, too!)

      I do have a question....

      What now???  My wife wants us to buy a new house soon, which I am saving a down payment for.  We currently live in an owner occupied duplex.  At the same time, I want to pull equity out of our property that this article is based on and buy another rental.  This creates a problem... obviously the wife must be happy.  The issue is that if I pull out more equity, my dept to income ratio will not be attractive to the banks.  Any advice?

      @Bernie Tobin Banks will usually count the rental income as YOUR income for a DTI calculation after a certain amount of time (I've heard 1 year in many case). My move might be to purchase your owner occupied house. Rent out your half of the duplex (if that makes more sense than selling it). Then wait till next fall when you will have had 3 rental units (2 from the duplex, one the recent purchase) for around a year. Your DTI shouldn't be an issue then, and you'll have had that time to build up your cash from the properties for your next investment.

      Thanks, Steven.  Another variable is that I have a partner.  He may be willing to lend me the money for another rental, and once I am moved into a new house, then I can refinance and pay him back my half.

      Your advice has been helpful!

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