Hello all BP family I am excited to announce that I just closed on my first property which happened to be a 4plex. I am excited for this new chapter in my life and would like to give a brief synopsis of how it all went down to hopefully inspire others to make a move towards making their dreams a reality.
So first off I began my interest in REI last summer. I was focused on learning about investing in stocks but I had read Rich Dad Poor Dad so that sparked my interest to see what this whole REI was about. I began by talking to people who then referred me to bigger pockets :) and purchased a few real estate books some of which some I still have not finished. For about a year I kind of stagnated because I was focused on paying off my vehicle but I continued to read books, listen to podcast on BP and chat with other colleagues who were interested in REI.
Fast forward to this summer my car was paid off my stocks were doing pretty decent but I still had made no real advancement in pursuing my goals of purchasing a property. So I decided I was done making excuses and ready to make moves. Now I understand that many people struggle at this part because they are scared to fail or they feel the time isn't right and honestly I felt that within that time frame of a year but I have failed many times in my life and I wholeheartedly believe the best way to learn is by experiencing it hands on.
Now even to this day I am surprised how fast everything moved once I took that first step which was getting set up with a realtor who also did REI. Once I found a realtor who was as motivated as I was and also had the experience to back up there talk everything moved so fast. In my market at the time there was not many multifamily homes and what was available was subpar. On a Monday a 4plex came on the market for a great price and I analyzed using the Rental Calculator on BP and based on the info I had and saw that it cashflowed exceptionally well(Details at the end of post). I told my realtor I wanted to see it and by that Thursday we went to go check it out. There were also three other interested parties there. Later that day he called me and said it had an offer on it and asked if I wanted to make one and with little hesitation I said yes. So the next morning I went in and made an offer and I honestly had no expectation of getting it so I chose to remain emotionally unattached. About an hour later I got a call at work saying they accepted my offer!! Complete shock!
It took about 45 days to close because we had asked for them to do quite a few repairs but it was all worth in the end and now I can proudly say I am a Real Estate Investor.
Heres a quick rundown of the property details
I offered $192000 because it already had an offer.
Based on Cap Rate for my area of 8% it should be worth around $260000
I asked for them to do some big and some little fixes such as replacing the furnace and creating postive drainage on the foundation to name the big ones and agreed on a price increase to $194000.
It appraised for $209000!!
FHA Inspection called for egress window which was a surprise so to make it quick we upped the purchase price to $196000 to cover the $2000 price for egress window.
Total rent is $2700 and my mortgage is $1226 so once all operating expenses were added in I am cashflowing about $950 which for my area is awesome since most multifamiles are at 6-8% Cap Rate and my property was 11%.
I financed using FHA loan putting only 3.5% down because my plan is to move into a unit for a couple of months do renovations to get the rent up and then buy another multifamily and repeat.
So there you have it and I am very excited to continue building my portfolio but I know and will reiterate the point that you can spend all your time learning and dreaming but once you make that first step it suddenly turns into you running and making your dreams come true.
This is fantastic , @Evans Wright . Good for you for seeing the opportunity and taking action!
Congrats on the deal! You're on your way.
Do you mind sharing how you calculate operating expense? $2,700 - $1,227 mortgage - $950 cash flow = $524 operating expense, or 19.4% of rents? Typically you see people reserve 8.3% vacancy, 10-20% repairs/maintenance/cap ex; 8-10% property management in addition to things like insurance, taxes, any landlord paid utilities, lawn maintenance, etc. All of that goes into the net number I use when calculating cap rate off of purchase prices. Just curious how you are doing your numbers. Regardless, congrats on your investment! Hope it goes week for you.
Congratulations !! Reading posts like these motivate me even more to move forward on my first property .
Great Job Evans! Sounds like you scored a good one. The really good deals seem to have dried up a bit this summer here in Great Falls. I purchased a duplex with a single family home all on one lot at the beginning of this year on 2nd N and 21st and haven't been able to find much since. My wife just got her Real Estate license so we hope we can turn it around here soon and start looking at a lot more properties. Good luck with your new purchase, it will be well worth it!
nice! congrats! just one note though. you stated "I financed using FHA loan putting only 3.5% down because my plan is to move into a unit for a couple of months do renovations to get the rent up and then buy another multifamily and repeat."
FHA requires you to live in the house for 12 months so you cannot just move in for a couple of months to do reno and then move out. You have 60 days to move in and then must reside there for one year.
Thanks for the post @Evans Wright ! I'm hoping to do the exact same thing very soon - buy a 4plex using VA or FHA. I too have been learning and reducing debt for the past year and am ready to pull the trigger. Now if only I could find one that will cashflow AND be in a decent neighborhood...
@Evans Wright congrats on the new property! Just curious, how is the market in Great Falls?
@chin p. Here is what numbers I put in. I am using property management which is 10%. They are well established and have low vacancy rate so I used 5% but it should be more like 2% according to what they told me. 1% for Cap Ex because all the major stuff is new. 2% for mnx cost which probably is a low ball %. Realtor said the owner paid average of $110 in water sewer garbage. Didn't have #s for gas and electric is paid by tenants except for one unit. Didn't include lawn care/snow removal because I will do it while I live in the state.
I am sure this is bound to change once I actually see expenses now that I own the property.
@Joe Fairless. I honestly think the market here is a hidden gem if you want stability and not volatility. We have a military base here and Oil company that are not going away anytime soon so there is always someone willing to rent or buy. Now that being said it has been a gradual increase in income so rents do not go up drastically from year to year. In my opinion I dont think single family homes cash flow that great(less than 1% rule) here but multifamily seems to be decent just hard to come by good ones that aren't overpriced. If you want to know more just PM me.
Congrats Evans. Though I've missed the last two meetings, Peter and I as well as some others generally get together the second Tuesday of the month during the local landlords association meeting. We've generally spent some time afterwards as BPers discussing but their meeting usually has valuable info/networking for landlords as well. I know you had planned to come out once so consider making it out. Seems like a decent buy, lets discuss more in person!
Congrats @Evans Wright seems like a great deal. About how long was your search before the deal came around?
Congrats buddy! Now you have to come to the monthly meetings to get land lording advice lol. Talk to you soon!
@Benjamin Blackburn Once I started searching it was only about three weeks. @George Nikolakakos Sounds good! I have been slacking to make it and there have been a couple of people who told me to go. Just message me the details next time and I will do my best to make it.
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