8 Deals In My First 8 Months !
8 Deals in my First 8 months- YOU CAN DO THIS!!!
Hey BiggerPockets, I wanted to use my first post here on Biggerpockets to summarize my first 8 months in this fun, crazy, stressful, and exciting game we call real estate investing. To give a little bit of a background, I am 30 years old, have a wife and 2 kids, I work minimum 48 hrs a week, and I moved to Southeast Texas for work in March of 2016 from Orange County, CA. While in CA I did not think about real estate investing at all because of how crazy expensive housing was. After I found out I was going to move to Southeast Tx, I started doing research on rentals to find a place to stay. Right away I noticed that houses were renting for way more than the mortgage would be. This is what got me started down this real estate investing path.
After writing this and realizing it is really long, I wanted to provide a summary near the top to give people an idea of some of the items talked about below as I am not naïve enough to think that everyone will be as excited to read this as I was to write it. The below summarizes some strategies and investment types I have used during my first 8 deals.
-Flipping
-BRRRR
-Buy and Hold
-Hard Money Loans
-Wholesaling
-Borrowing from Family
-FSBO Purchase
-SFR Purchase
-Multi-family Purchase
The 1st Deal Purchased 12-22-16: After moving, I spent the first 6-8 months researching the rental market in the area and learning all I could from Biggerpockets. I knew that I needed to make sure I did not get stuck in analysis paralysis so on 12-22-16 I jumped in and purchased my first flip property. It was a 4 bedroom 2 bath foreclosure in a neighborhood with a good school district. Today it is completed and under contract to close in 2 weeks. Below are my numbers:
Purchase price: $ 55,000
Closing Costs: $887.00
Holding Costs (interest and utilities and insurance): $8,200
Remodel costs: $79,550
Sales Price: $170,000
Commission/Closing: $ 15,300
Net Profit: $11,063
Now while most people will not even consider doing a flip for a 10k profit, I consider myself lucky that my first flip did not lose me money and that I was able to get paid for an extremely value education.
The 2nd Deal Purchased 3-17-17: While in the middle of completing the flip, I was introduced to a wholesaler, @James Gallen, through 1 of the 2 local REIA I attend. He had three properties available at the time and I ended up purchasing two of them. I was able to find a small local bank that would loan 80% LTV based on the tax assessors value even if the purchase price was less than 80% of the value. This was great because that means at time of closing, I could walk away from the title company with a property and a check.
The lender I used was a commercial lender so in May I started an LLC. I closed on the first property middle of May 2017 with cash because the seller needed a quick close. I then completed the BRRRR strategy on that property, got it rented within 4 weeks, and was able to pull almost all of my money out of the property. Rough numbers for this property:
Loan Amount: $63000
Cash Out of pocket: $7200
Rent: $950
PTI:$ 590
Maintenance/cap ex: $ 115
Vacancy: $95
Property Management (Myself currently): $90
Cashflow: $60/month
ROI: 10% using a property management company and a 26% return when doing my own management.
The 3rd Deal Purchased 5-2-17: The second deal from my wholesaler was not a time sensitive situation and I was able to wait the 20-35 days to do a normal close with my lender. Again at time of closing I was able to walk out of the title company with a check for $4600. This property had a current renter in it with no lease. I was able to get him to sign a month to month lease. He left a couple weeks ago and we are in the process of showing the property to get it rented. Rough numbers on this property:
Loan amount: $58,000
Cash Out of pocket: $-4,600
Rent: $850
PTI:$ 540
Maintenance/cap ex: $ 100
Vacancy: $85
Property Management (Myself currently): $85
Cashflow: $40/month
ROI: Because I actually invested no money it is not possible to calculate ROI.
When analyzing both these purchases, I looked at the properties together to help calculate the ROI. Assuming I used the $4600 I received from the 3rd deal to help offset the $7000 I spent to rehab the 2nd deal, the ROI on both properties is around 45% using management and 130% if I manage them, which I currently am.
The 4th Deal Purchased 6-2-17: The realtor I am using to sell my first flip gave me a call on 5-26 saying she had a great flip opportunity but it needed to close within a week. She had a property that was on the market for around 20 days for a sales price of 100k. Many people were interested but some rotten wood on the exterior turned off many lenders. The seller was in a bind and was going to lose the house they were going to move to unless this property sold. They were willing to sell for as low as 55k if I could close in 7 days. After making a few phone calls to family I got a check in the mail and closed 7 days later. One note on my ability to make a phone call and get money. I had already borrowed money from this person to purchase my 2nd deal and had paid it back when the BRRRR was complete so I had built up trust. This project is about 7 days from completion and being put on the market. Below are the rough expected numbers.
Purchase: 55K
Rehab: 23k
Holding costs: 1k
Financing costs: 3k
Sales commission and closing costs: 11k
Sales price: 125k
Estimated profit: 32k
The 5th Deal Purchased 6-8-17: While I was at the 2nd deal mowing the yard getting it ready to rent, I was talking to the neighbors and they let me know that the neighbor one more house down was moving and they were not sure if they were going to sell or if they were going to rent it out. Ding, ding, ding. The lightbulb went off and I knew that the next time I saw their truck out front I was going to talk to them. Long story short, I ended up walking the house 2 days later, talking to the owner, and finding out he was interested in selling. I did not feel comfortable enough to work the deal myself so I gave the lead to the wholesaler who I purchased the other two properties from. We had an agreement that I would get first crack and an assignment fee discount for any deal that I brought to him. I knew that even if I did not buy it I would get some money through a finder’s fee agreement we had. @James Gallen was able to negotiate a great price that was around 70% of tax value. My bank approved the loan and I closed on the deal about 30 days later. Rough numbers for this rental:
Loan amount: $83,200
Cash Out of pocket: $-1,600
Rent: $1,350
PTI:$ 870
Maintenance/cap ex: $ 160
Vacancy: $135
Property Management (Myself currently): $135
Cashflow: $50/month
ROI: Because I actually invested no money it is not possible to calculate ROI.
The 6th, 7th, 8th Deal Purchased 6-15-17: During lunch one day I was looking on southeasttexas.com to see if there were any good deals. I noticed a 3 unit (4/2 house and 2/1 duplex) property for sale by owner. I immediately called her and talked to her for about 20 mins. She was selling the property because her husband wanted her to get out of the rental business because of her age (70ish). The price of the property had been recently reduced from 89K to 79K. The duplex was currently rented and she was in process of finding a tenant for the house. All three units had been rented with section 8 tenants. I met her 3 days later and walked through the property which was in great condition. I submitted a 75k offer using my own 3 page contract 5 days later. She emailed me and told me she had received another offer which was better than mine and was going to take the other person’s offer. I called her right away and let her know I would be submitting a second offer and if anything at all makes her feel uneasy with the current buyer to call me. I submitted another offer at 85k via email. She called me two days later and accepted saying the other buyer was very flaky and uneducated.
I was in uncharted waters with this property because the other 3 rental properties I purchased had all been below 80% of tax assessors value so I knew I would have to bring a small amount of money to closing. The tax assessors value was 66k on this property due to the C-class area so an appraisal would have to be done. After appraisal was complete, my bank was willing to loan 71k of the 85k purchase price. I was able to secure a private family loan for 18k (5 years @2.5% interest) to cover the difference and pay for closing costs and have some extra. Below are the rough numbers:
Loan amount: $71,000 primary, 18,000 secondary
Cash Out of pocket: $-3,500
Rent: $2,250
PTI:$ 975
Maintenance/cap ex: $ 270
Vacancy: $225
Property Management (Myself currently): $225
Cashflow: $550/month
ROI: Because I actually invested no money it is not possible to calculate ROI.
To those who have been concerned with dealing with HUD please note that after purchase I went to the housing authority office and got the paperwork, filled it out, filed it, and received most of the housing rent checks 15 days later on 7-1-17. They did miss one payment for one of the duplexes. I called them and within 15 days they had the money in my account. I have heard nightmare stores regarding housing but my experience with them has been very smooth.
This turned out to be much longer than expected. I hope that my story encourages those who are new to investing to get educated and take action. Getting educated is a very important first step but don’t make it such a big step that you never actually step off and purchase a property or do a deal. The education you will learn from actually doing a deal or purchasing a property is far more valuable than your initial “book” education. The initial “book” education should be completed before “doing” so that you mitigate the risk involved with a far more valuable education, the education associated with “DOING”.