Nervous about first deal. Need help

17 Replies

I am nervous about my first deal and need some advice. I want to buy and hold a triplex in florida. Here are the details: Three units. One 3/2 and two 2/1.

$245,000 price. 25% down. $3000 closing costs. 4.5 % financing with .5 points and 20 year amorization. Taxes $2400. Insurance $900. Rents $2650 (all units) monthly. I plan on self managing. Building passed inspection with no issues and is fully leased currently (new roof, new septic, new a/c). If I figure 10% vacancy and 10% expenses I get the following:

CAP 9.14% COC 12.98%. Debt ratio 1.6.

Any advice would help.  Thanks  

Not sure what advice you need here.  The numbers look good.  It's natural to get nervous on the first deal, the important thing is that you are DOING your first deal.  Many people simply can't pull the trigger on their first and as such, never become investors at all.  Congratulations for making the decision - and seriously, how can you go wrong with 4.5% interest rates?  Historically, that is amazing.

@Mitchell Miracle

Those numbers look good. 

 A few comments;  
Is there any rehab that’s needs to be done?  
Was capex included in the 10% expenses or are those repairs.

1162 + 200 + 75 + 265 + 265 = 1967

Cash Flow $683.00 or 8196 annually

CoC about 12.57

61,250 + 3000 + 919 = 65,169/8196 = 12.57%

Good Job.

Thanks for the comments. This triplex has already been rehabed. I did negotiate $2500 from the seller at closing to replace one of the refrigerators. No rehab needed. All expenses are capex. A/C units are all less than 8 years old. My only concern is that I am paying almost appraisal for the property and putting down a large sum of cash to buy the equity. It is a very conventional deal. I think my sticking points are that I am not getting a great deal on the property and what opportunity costs I am loosing by putting that kind of money down.

@Mitchell Miracle

It's a philosophical concept. There are plenty of investors who put down 20% and look at cash flow and there CoC return. I always want to buy at some kind of discount not full value price. It's your choice, but it sounds like your buying a quality property that doesn't need any rehab. I tend to go the BRRRR strategy where I'm forcing the equity. It takes a lot more work, but I get to enjoy the equity I created.

My thought process was also that I get one purchased traditionally in order to gain the landlord experience and get started in investing. Then, I can start looking into the BRRRR strategies. I have pretty good cash reserves and need to diversify my investments portfolio. I really want to own quite a few properties with the ultimate goal of producing income during my retirement. I am getting started late (50) but i do have the advantage of capital and a good network of professionals (accountants, bankers, attorneys) Thought this would be a good start just needed some experienced investors to provide input. Thanks for doing that.

@Mitchell Miracle I agree with @Kenneth Garrett . Your first deal isn't going to be the money maker. It's to get you in the game. You don't want to buy a bad deal just to get in, but this looks solid. Once you get used to how things works, you will be in a much better position to do a light BRRRR on your next deal. Time is now what you need to make this deal a huge success (along with proper management). In BRRRR, you can shorten that equity build timeline, but everything else is generally the same. Good work!

If you are nervous, it probably means there are things you have not thought of or you don't know your market well enough.  If you know your numbers and your market, you would not be nervous.  

@Mitchell Miracle I would increase the 10% expense and break it down like most here mentioned. I usually have 10% PM, 10% capex,10% maintenance. I like to set conservative numbers to know how much i would cash flow on a bad month. I used to set my calculations on the optimistic side but it has helped me a calm my nerves when I know the least I will cash flow

Originally posted by @Mitchell Miracle :

My thought process was also that I get one purchased traditionally in order to gain the landlord experience and get started in investing. Then, I can start looking into the BRRRR strategies.

I like this mindset because you recognize that its a journey and learning experience. I hope you wont mind if I re frame this and it may help with the struggle of, "paying almost appraisal value and not getting a great deal".

A great deal is how you define it! It is instant equity? Is it great cash flow? Is it a low risk learning opportunity? Is it the ability to help someone in a desperate situation?

The numbers look really solid but only you can decide what you deem as a great deal. And that is based on what your long term goal is and how this first property gets you there. Personally, I do not mind paying for education and I will sacrifice big equity for good cash flow :)

Good luck!

Originally posted by @Mitchell Miracle:

My thought process was also that I get one purchased traditionally in order to gain the landlord experience and get started in investing. Then, I can start looking into the BRRRR strategies. I have pretty good cash reserves and need to diversify my investments portfolio. I really want to own quite a few properties with the ultimate goal of producing income during my retirement. I am getting started late (50) but i do have the advantage of capital and a good network of professionals (accountants, bankers, attorneys) Thought this would be a good start just needed some experienced investors to provide input. Thanks for doing that.

 

I echo what everyone else is saying. From the data you provided, this deal looks pretty good for a first deal. The metrics all look fine to me no matter how you are getting in on it. Is the area appreciating as well? Florida can dark in spots during recessions so you want to be in a spot that will maintain your rents and value. A lot of people get nervous and tank a good deal and we could be missing something in translation here, but how hard did you have to work to get the deal? If you got a seller credit, the place has been rehabbed, the numbers look good, I don't see any issues here.

Thank you Richard. I think sometimes I hear about the GREAT deal that someone got and hit a home run. Rarely do I hear about the OK deal that provided decent cash flow, paid down the mortgage, and netted a return 15 years down the road. Buy and hold is not sexy so it does not get a ton of press. I feel pretty good about the deal based on everyones input and am moving forward with the appraisal. Thanks.

As others stated the numbers look good. My advice would be to browse videos (or continue to study) how to manage 3 properties. It could be overwhelming going from owning nothing to now collecting rent and managing repairs on 3 homes. Be strict with the tenants from the very beginning. If you offer any sort of leeway or agree to make unnecessary upgrades they will walk all over you.

@Mitchell Miracle the numbers look great! I own properties and oversee ~200 deals a year, still when I get close to pulling the trigger for myself I get the butterflies. I think this is why it's so important to establish your criteria when you're level headed.. when you're not on the edge about to jump! When you find something that matches you can remind yourself that this property fits everything you wanted when you were thinking very clearly! So excited for you!! 

Numbers are nice and conservative. Rehab already completed. I'd say that's a pretty good deal (assuming in a good rental market)