First Buy and Hold!

21 Replies

I've been looking around this site for awhile and decided to make an account.  Just purchased a condo three weeks ago and had tenants in for a week now.  I'll share the financials and reasons why I decided on a condo as my first purchase.

2 bedroom, 2 full bathroom

Condition: Class A property, minor repairs and paint needed in order to rent.

Purchase price: $115,000

Mortgage (P&I): $450
HOA: $180
Tax: $235
Insurance: $30

Rent: $1300

Cash Flow: Rent - P&I - HOA - Tax - Insurance - Vacancy(5%) - Maintenance(5%)

Cash Flow: 1300 - 450 - 180 - 235 - 30 - 65 - 65 = +275

Total Cash Invested: $32,500 (closing costs, minor repairs, paint)

Cash on Cash: 275x12 = 3,300 / 32,500 = 10.15%

Reasons for investing in a condo:

1. I am very familiar with the area.
2. Good school system
3. Working professionals rent in the area.
4. House with similar dimensions in area are double the purchase price and double the taxes.
5. I work full time so a higher end area allows me to have less headaches.  Also not having to maintain an exterior is likely to take away some hassel as well.
6. Appreciation likely, same property sold for $150,000 in mid 2000's.
7. Researched HOA before purchasing, good reserves and managed well.
8. Wanted to jump in to real estate (paralysis of analysis for a year), as someone mentioned before "ready, fire, aim".

That being said, for my second rental I want a single family home.

Congrats! @Joe Conklin 

It's a great idea that you researched the HOA - that's normally where it hurts for investors from what I've heard. Those condo fees can be a killer and so can the association! Good luck and as always on to the next one!

Congrats on your first purchase!!!

Congrats on your purchase!

For your CoC you should also figure in Property Management and CAPEX... granted, with a condo the CAPEX may be a bit lower but you still have appliances and things in the unit that will need replacement. Do you have your own hot water heater and furnace or are those central?

With regards to Property Management, doing it yourself is like a 2nd job and shouldn't be figured into your CoC... think of it as a time value issue that you'll need to decide on your own (I save $130 a month in fees... but spend X hours each month or year dealing with stuff a PM would do). For some it's worth it... for others they can make more money doing other things (why make $30 an hour in property management when I can make $50 an hour flipping for example)... and still others don't want the hassles (*raises his hand to that one!!*).

With CAPEX and PM, your cash flow is going to be pretty poor. You bought at just under 1% rent (rent as a percentage of purchase price). That's pretty close to the break even point at today's interest rates. What's hurting you is the HOA fees and the high tax rate... you're over 30% expenses after just those 2 items (I try to buy properties with property taxes under 1 months rent).

@Joe Conklin  Congratulations! I am from South Jersey as well. I know the numbers down there are not easy to work with. I am glad you were able to. Great job!

@Joe Conklin 

Congratulations! looks like you have got it all figured out :)

Congrats and great luck!

@Jon Huber   yes its not the easiest market in the world, however I plan to make the best of it

First off, Congrats on your first purchase. I'm still in that phase of needing to just do it already. Can't wait to make my first deal, whatever it is just to get going. Good luck with future deals.

Nathan Emmert - when I first read the part in your post about finding properties with taxes under one months rent, I thought it impossible. I realized your property taxes must be much less than ours here in Texas. Our rate is 2.7% for most of San Antonio. Maybe in Class D it could be possible...

Great job! Congrats! How did you find this property (if you don't mind my asking)? How long did it take you? I'm just starting out myself and have been looking in my market with much less satisfactory results. Losing steam, but I'm determined not to lose at this "game." Thanks.

Originally posted by @Joshua Durrin :

Great job! Congrats! How did you find this property (if you don't mind my asking)? How long did it take you? I'm just starting out myself and have been looking in my market with much less satisfactory results. Losing steam, but I'm determined not to lose at this "game." Thanks.

 It took over a year to find a property and purchase it.  I also went through phases of doubt.  Than one day I just said to myself that I will do whatever it takes to succeed.  When I made that mental commitment to myself things went a lot faster.

Specifically, this property I found on redfin.com and saved it as a "favorite" because I liked it, but it was priced high.  It was on the market for $132,900 than $129,900 than it dropped to $119,900.  I received an email notification that the property value dropped and I took a look at it.  Negotiated the deal and after a few headaches with the mortgage company I am where I am now.

My advice would be to not allow yourself to lose steam.  Just because you had less than satisfactory results thus far does not mean that you will have less than satisfactory results today and tomorrow.  Once you become laser focused on your goal you will overcome any adversity that the world can offer.

@Joe Conklin  Congrats on your first purchase! I am approaching a similar property with this "find and wait" strategy, I have determined a good price that I would feel comfortable purchasing at, waiting for it to get down to a reasonable price where I might be able to negotiate a little more and then pull the trigger. Glad to know it has worked out for a newbie as well!

Originally posted by @Kyle Handy :

First off, Congrats on your first purchase. I'm still in that phase of needing to just do it already. Can't wait to make my first deal, whatever it is just to get going. Good luck with future deals.

Nathan Emmert - when I first read the part in your post about finding properties with taxes under one months rent, I thought it impossible. I realized your property taxes must be much less than ours here in Texas. Our rate is 2.7% for most of San Antonio. Maybe in Class D it could be possible...

 In Utah, my taxes are about 1/2 of 1 months rent... here in MI they are just over 1 months rent typically.  These are C class area properties.

@Joe Conklin Congratulations! Getting the first one is such a big step, it builds your confidence and makes the dream become that much more real. My one piece of advice on this one is be careful with vacancies, especially with the HOA. Whether you use property management or not, treat the tenant as a human. Write a postcard, let them know you care about any issues they have, I even send a gift card each Christmas to my tenants. These little things can make a huge difference in vacancies.

For your next property, I'd encourage you to look out of state.  There are many great rental markets out there where you can find killer deals.  It might seem scary, but just like this one, once you purchase the property and get over that hump, you'll never look back!

@Joshua Durrin  don't give up!  Feel free to ask me questions any time, I'd love to help you find your first property.

Originally posted by @Matt Deibel :

@Joe Conklin Congratulations! Getting the first one is such a big step, it builds your confidence and makes the dream become that much more real. My one piece of advice on this one is be careful with vacancies, especially with the HOA. Whether you use property management or not, treat the tenant as a human. Write a postcard, let them know you care about any issues they have, I even send a gift card each Christmas to my tenants. These little things can make a huge difference in vacancies.

For your next property, I'd encourage you to look out of state.  There are many great rental markets out there where you can find killer deals.  It might seem scary, but just like this one, once you purchase the property and get over that hump, you'll never look back!

@Joshua Durrin  don't give up!  Feel free to ask me questions any time, I'd love to help you find your first property.

 Thank you.  How did you get into investing out of state? Turnkeys?  It is interesting to me but I wouldn't know where to start.  However, I like it because I can get in more properties for a lower cost at a higher return.

@Joe Conklin I did a lot of networking and a lot of asking questions.  Yes turn key, let me know if you're interested in seeing some info on the properties I bought, I'd love to share.

A big "huzzah!" to you! Way to go! Like others have mentioned above, I also feel like once you've got the first property under your belt, you can't wait to get into the next one. Keep your enthusiasm and momentum going. Learn all you can, integrate your new knowledge into how you handle your real estate growth, and keep on adding to that portfolio!

I have sworn up and down that I will never buy a condo due to HOA hassles and the fact that even when the mortgage is paid off you still have to pay the HOA fees. But, it sounds like you know your market well and made the best decision available to you. I'm trying to open my mind to the idea of a condo as a vacation rental somewhere... we'll see. ;-)

@Nathan Emmert   suggested property taxes at/below 1 month of (gross?) rent. It hadn't occurred to me to think of it that way, but I like that suggestion a lot. I just did the calculation and the taxes on my triplex in Stockton, CA are a tad higher than 1 month of gross rents. For being in California, I suppose that's pretty good, though my property is in a C neighborhood.

@Joe Conklin 

congrats, I am in the south jersey area as well.  What town is your condo? I have one in sicklerville that does great numbers.

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