Purchased my first rental property!

15 Replies

What’s up I’m chandler and new to bigger pockets. I’m 24 and live in Arkansas and just purchased my first rental property. I acquired a 2 bed 1 bath 1,264sq ft home built in 1961. It honestly doesn’t require any work to be tenant ready but may improve a few things. I ended up getting it for $49,900. I worked with a local bank to secure a conventional loan for around $42,500 after the required 15% down and ended up with a 7.25% interest rate. Basically just looking for suggestions on where to go next with the rental property business and looking for pointers to keep me from making large mistakes. This property in our area should go for around $650-$675/m and once I feel it’s ready I’ll be starting to accept tenant applications.

@Chandler Calvert

Congrats on attaining your first rental my friend. Your journey to financial freedom begins here. However, I have to say, the interest rate on this house is pretty steep. Is that what interest rates for rentals going for nowadays or is there more to the story?

Anyway, the first half of your obstacle is acquiring the property. The second half is finding a good quality tenant. I used mysmartmove.com by Transunion when it came to obtaining background checks. They do criminal, eviction, and how much they make compared to your rent. Don't let someone give you "3-6 months rent in advance", you are just looking for trouble that way. Walk them to their car and see how the inside of their car looks. How they treat their car will tell you how they will treat your house.

Read up on housing discrimination laws. Make sure when you make your advertisement that you are not violating any of those laws because if someone sues you for discrimination, you will have to pay $10K in fines.

The first thing that jumps out at me with what you said is that 1200 + square feet is huge for a two-bedroom. Is there somewhere you can put up a door and make sure there's a closet and convert this house into a 3-bed to improve your rent? Other than that, if it will rent, don't improve anything. That's probably the most common mistake all first-time investors make, is over improving things that don't need it. Really eats into your profit margin. Also, that interest rate is a little high on something you're going to hold, you may want to look at refinancing  in a couple years.

Other than that, I would say just take your time with this one and learn how to either screen tenants and manage it if you're going to do that or make sure you have a property management company that you're happy with before you buy more. The management on these will really make or break you.

@Brian Adzadi I’m not sure on the interest rate. I went with a local bank so it may be high but I’m gonna just try to pay as much principal as possible. It’s locked in for 5 years so I might refinance after 5 years of it isn’t paid down a ton. Thanks for the info on discrimination laws as well.

@Chandler Calvert - Congrats man!  I stated this before in a different post but really soak in this moment.  Go celebrate somehow and truly have a good memorable time because THIS is the moment "where it all started."  Truly beautiful.

As stated before, yes that interest rate is REAL high.  Especially with you putting down 15%.  I understand your logic on paying down the principle as fast as possible but that rate is about 10 years old haha!

What area are you in in Arkansas?  I have multiple people that have helped me with financing that I could point you toward.  The getting your feet wet stage is awesome and I'm all about doing SOMETHING instead of just sitting there deciding even if it isn't the best deal but that rate seems real high.  

Feel free to reach out anytime...

Cory

I was just looking over some old loan papers today from a mortgage I had in 1993. Interest rate was 9.0%.

I also agree the interest rate seems high, especially if it has a changeable rate or balloon. However, don't focus on that for now. Get someone in the property as a tenant after a careful screening process. And as stated by a previous poster, don't improve things in the property that don't need improving. The important things are: 1. Everything works as it should (ie, faucets and toilets aren't leaking, outlets all work and are wired correctly, ceiling fans and lights all work and so forth. Test the burners and oven on the range, make sure the water heater temp is appropriate (about 120 degrees)

2. There isn't anything that's horridly ugly. ie, red walls, black carpet, decorating is a matter of individual taste so anything you paint or redo should be for the average. Hence light colors in neutral tones, etc.

3. Check the outside of the property for issues and make a punch list of those that can be done even after the tenants have moved in. ie, when we redo a property, we get the inside completely done and then advertise it while working on exterior items. The outside of house can be painted with tenants inside. They usually won't mind because the place they rented is getting better and better!

Congrats on getting started at a young age. Use this website a lot as there's a wealth of data on it. Once you get this property stabilized and hopefully cash flowing, keep an eye out for the next deal!

@Chandler Calvert Congratulations on taking massive action and getting into the game!  

Many people have commented that your interest rate is high. We all want the lowest rate possible.  I think your interest looks good for a first time investor on a non-owner occupied conventional loan.  Sure, there are lower rates out there, but with your current situation, I think you did very well.  

@John Teachout points out that he had a higher rate and the deal was still worth doing.  My very first real estate deal had a much higher rate, and I gladly took it.  The rate isn't as important on investment analysis as we sometimes think.  

The real measure is can the property cash flow?  Will it be fairly easy to rent and maintain?  If it pays for itself, even breaks even, it's often worth doing if you're planning on holding it for a long time.  Imagine what this house will mean to you if it's still working each day in your portfolio 20 years from now?  

Someday you will want to refinance it, and you may get a better rate; but probably not that much better.  If you can hold this first property thru your career, I promise you will be happier than if you sell it to move up to bigger and better... there is something special about the first one so keep it if you can.  

You've proven you can do a real estate deal, so lease it up and do it again!

All the Best!

A high interest rate isn't the end of the world.  You can always refinance later.

Curb appeal is huge in attracting tenants. Nobody wants to pull up to a house with an over grown lawn or weeds growing everywhere.  A fresh coat of paint inside the home can also go along way to freshen things up.

Focus on doing what you can to get a quality tenant in paying you rent.

Long term I think at the price you paid and the rent rates this sounds like a great property for you.