Newbie First deal: bought 2 rentals in one day/3 in one month!

Real Estate Success Stories 73 Replies

Heres the short version for you who TLDR.

I never bought a house before. Bought 2 in one day, 3 in one month. Learned all I needed to know right here on BP. Used all the calculators here on BP to figure out the deals. Met my agent and property manager on BP.

Sounds like material for the next newbie podcast huh? @Brandon Turner , @Joshua Dorkin . Maybe the first ever agent/investor in same podcast show?? :) 

On to the journey. After about 2 months of research I decided to pull the trigger, and then fire off a couple more rounds.  I had never even bought a house before!  I am currently investing in buy and holds in the Rome GA market.  HUGE shout out to a pretty BA agent @Collin Doss for putting up with my million newbie questions and doing most of the foot work!I highly recommend him, this guy will put in the work!    Also great property management on their part.  And I met then right here on BP!  

I'll tell some of the funnier stories before the good ones (we all like those).  One property we went into I had the sinking feeling something was missing in this 2/1......Then I realized the tenants had no refrigerator or stove.  They did however have plenty of food laying about.  On this one Collin actually suggested if we get the place to go ahead and buy the tenants a stove and fridge.  He believed they were good tenants and it would show we actually cared about them and make them stick around.  Right there in my first interaction I realized their company did actually care about people as well as making profits for their investors. We got out bid on this house. He also later advised me against a duplex we looked at because he had a bad feeling about the tenants even though this property would have got him a nice commission. 

Another house was littered with heroin needles and obviously had squatters plus the obligatory cat pee pee smell.   The neighborhood looked like something out of season 1 True Detective, like i might be kidnapped and have a pentagram drawn on me any second. We got out of there pretty quick!

On to the purchases.  2 deals came up and Collin asked if I wanted to put in offers on both.  After I resisted the urge to puke for a few mins I said yes!  This was at 8:30 at night. We got counter offered by 9pm.  I'm thinking "who the hell sells houses at 9pm?"  Apparently every one. We went back and forth a few times and set closings for both on the same day.

Property 1- 3/2 SFR

$74,500 rents for $850 

Property 2- 3/1 SFR

$63,000 rents for $715

Property 3 (about 25 days later) 3/2 SFR

$55,900 currently rents for $700 with inherited tenants, plans to go up on rent when lease is up.

Here is a breakdown of all the numbers (credit to someone on BP for making this spread sheet, I don't remember who)

A definitely learned a lot about everything involved.  Getting repairs done on even "rehabbed turn key" type places, getting quality tenants in, financing etc. I'm no expert, but any other newbies feel free to hit me up with questions.  I'll be glad to try and help.

Special honorable mention to other BP members like  @Ali Boone for letting me bug the hell out of them with questions.

@Collin Doss I am also interested in investing out of state at some point. I am trying my hand at land lording. We will be buying properties in California first get our feet wet hopefully make some more money and get back east! 

@Robert E Bogino very cool thread! I am also a brand new investor and up and coming land lord! I'd love to come out east or Chicago or Kansas City with a pile of cash and pick up some properties!

@Robert E Bogino I herd that if you can raise the rents 10 to 20 a week once a year that your property will make you a extra ten grand a year!  That sounds like a big return to me?

Thanks for the detailed post! I am just getting into the first phases of investment properties (reading books, etc). Is there a reason that you put your CapEx, Vacancy, and Upkeep so high at a combined 28%? Or at least, that seems high to me. Do you expect repairs specifically on these properties or are you just trying to be cautious while you are still getting into the industry?

@Levin H. With cheaper properties like this you have to have a higher % because a lot of fixed costs are just as expensive to replace no matter if you get 800 per month in rent or 4000.  

Originally posted by @Chris Gibbs :

@Levin H. With cheaper properties like this you have to have a higher % because a lot of fixed costs are just as expensive to replace no matter if you get 800 per month in rent or 4000.  

Agreed ... if Levin thinks that $200/mo ($700*28%) is too conservative for CapEx, Vacancy, and Upkeep then he is in for quite a surprise, as is the OP I suspect. When the roof goes bad, the roofer is not going to ask you first how much the place rents for before he gives you the roof bid, so why on Earth would you use that to estimate the expense?!? It makes 0% sense to do it that way.

If he thinks that somebody is going to manage a property like that well for $42/mo ($700*6%), then he is also in for quite a surprise, as is the OP I suspect ... gotta love those wonderful calculators where everything is a percentage of gross rent, LOL. Sorry to be the bearer of bad news, but these look like negative cash flow properties with zero appreciation potential to me ... I hope the OP proves me wrong ...

Congrats Robert E Bogino you took that first leap and are soaring. I'm a newbie as well and I was just curious to how you raised your capital? And did you plan to purchase 3 properties on your first purchase?

I was actually looking for a calculator/budget sheet such as that you posted. Thanks! Really helpful. And what a great post! 

Originally posted by @David Faulkner :
If he thinks that somebody is going to manage a property like that well for $42/mo ($700*6%), then he is also in for quite a surprise, as is the OP I suspect ... gotta love those wonderful calculators where everything is a percentage of gross rent, LOL. Sorry to be the bearer of bad news, but these look like negative cash flow properties with zero appreciation potential to me ... I hope the OP proves me wrong ...

It does not sound like you like the calculators with the ratios so much, do you stick with static numbers for your emergency reserves ($250,$300,$350/mo per property) versus using a percentage? I mean, surely some repairs (paint, carpet, roof) vary with the square footage of the home but appliances and many other things definitely don't care what size the house is. 

With that said, an investor should already have a good emergency fund set aside, so the allowance taken from the rent proceeds is just extra padding, correct?

@Robert E Bogino it looks like the ARV is the exact price that you paid for each property, do you not have positive equity in the properties right out of the gate?

@Levin H. My estimates are probably accurate, maybe a little high for the conditions of these houses.  A lot of items have been rehabbed on them already.  I would even go up on my estimates if they were in poor condition. Vacancy in that area is more like 5%, but you never know. On property #2 I did  start the rent a little high first to see if I got any bites.  I did eventually drop it down and got it rented almost immediately.  This was one of my lessons I learned.  I half expected this result and had ran the numbers at the bottom line rent I could get.  Some things on the next tenant turn over will be changed and it will get rented for a bit more. I was experimenting with the area and fully expected a longer than normal vacancy while feeling out the process. These are just generalizations for estimating your repairs.  I think its a good place to start. As I learn more about repairs and rehab costs I may break it down more specifically.

This is more than likely not the highest appreciation area.  It is mostly blue collar.  Nice folks with very low crime rates and nice neighborhoods.

I already have a large emergency repair fund set up.  I think this is must!

And the ARV is higher than the purchase price, especially on #3. It was listed wrong as a 3/1 but it is really a 3/2! I just plugged the same number into my spread sheet on the ARV line for now, I have not had them reappraised,

As far as the property management.  It is a little on the low side, I think GA in general runs a little lower than some other states.  This is a percentage we worked out knowing I would be adding multiple properties.  So far I can say they are doing an awesome job.  Very responsive and fast acting.  They got tenants way faster than I could have on my own, do all the credit and back round checks etc.  Fair prices on repairs and actually do care about the tenants.

@Folashadé Shelton All my capital for the DP were from my savings and previous investments in the stock market.  I'm an old guy 40 so Ive had some time to save.

@Robert E Bogino Cool, thanks for the thorough reply! I think I understand the vacancy rate, but just to be clear, if you say it is around 5%, that means that (in theory of course) if you owned that property for 100 years, you'd expect to have about 5 years of vacancy throughout that time?

I agree with @David Faulkner here:

"Agreed ... if Levin thinks that $200/mo ($700*28%) is too conservative for CapEx, Vacancy, and Upkeep then he is in for quite a surprise, as is the OP I suspect. When the roof goes bad, the roofer is not going to ask you first how much the place rents for before he gives you the roof bid, so why on Earth would you use that to estimate the expense?!? It makes 0% sense to do it that way."

Fortunately, he has pretty low annual tax for about 800 per year.

But, suppose you account all of the big items and average them out down to the per month accrual, I think $200 seems like a good number to have for capex. The thing with Capex is that if everything is newly rehabbed, you can build that reserve fund overtime at a slower pace. It is not like everything would break down all at the same time tomorrow (Well, hopefully not... unless there is an earthquake or something like that). But, if the assumption is that you buy and hold the property perpetually, even if the foundation is new, perhaps about 100 years from now, you will have to replace it. This is not very practical since you would not live that long anyway (well, some people do.... but I digress). so, capex is both art and science in my opinion and is a bit tricky to estimate.

It all depends on the condition of the big items: roof, foundation, windows, furnace, water heater, etc.

Also, the more properties you have, the more you can cross subsidize from the income of all of your different properties.  If one roof breaks down on one of your 5 properties, you can have the fund you set aside from all of your 5 properties to help fix that one roof that breaks down.  In a sense, once you have so many properties, your portfolio acts like a multi-family.  In a multifamily, the budgeting of the capex is slightly different because of this very same reason.  The capex cost is spread out through out all of the units.

Congratulations @Robert E Bogino . I think buying 3 properties at once (as long as you have reserves) is a great way to learn about and gain experience with real estate. It gives you a bigger sample size to learn from rather than having one bad experience and then thinking that all rentals must be like that.  

I have talked with people who have had 1 rental or maybe 2 that have had bad experiences and then they are soured about landlording and not open to the possibility that it may be different than what they experienced.

Now that you have 3, what's next?

Medium blue equities logo webShiloh Lundahl, Blue Equities, LLC | 480‑206‑1209 | http://blueequities.com

Congratulations! I used to live in Rome, Georgia and thought the houses there were nicely priced. I would have bought one but I was living at Berry College and paying rent of $275 a month taken out of my paycheck before taxes. I wasn't thinking in terms of investment properties at the time. 

@Robert E Bogino Congratulations on your 3 properties, I want to get there someday. why did you choose Rome Ga? Im in the Atlanta area  and was just curious about why Rome? 

@Levin H. Correct on the vacancy estimates.  I'm assuming about 5.2 weeks a year vacancy.  This will vary on a number of factors.  For instance my property #1 rented in about 2 weeks, property #2 took about 5 weeks, and #3 already had tenants in place.  You may even have tenants stay for 3 years. You also will have some time between tenants to clean and make repairs on your properties.  Like in the case on my #2 I'm planning on some renovations when this lease is up with will add a little vacancy time.   

@Shiloh Lundahl  I absolutely have reserves in place for emergency repairs, large cap ex items etc. If I didn't I would stress myself to no end! As far as whats next?  More properties, hopefully even better deals.  We are looking into some off market deals as well.

@Andrew Syrios Thanks Andrew. I just listened to your podcast yesterday! Great show!

@Susan Maneck  There are definitely some cash flow properties to be had in Rome.

@Sonia Vanegas That was the first place I really found an agent and property management that I liked and that actually knew what they were doing. The market there is not quite as competitive as Atlanta.  There are some good deals to be had there.  I work an ultra full time job and do not have the time to see all the properties that come up myself.  This team jumps on them.  I kinda have to play to my particular strengths right now.

The renovation budget appears to be exceedingly low. One had animal waste smell you cleaned and fixed them yourself? What about frig, oven cost?

Congratulations.

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