I'd like to share some info/details about my first buy-and-hold deal that I recently completed to get some feedback on not only how this one went but if I should follow a similar gameplan moving forward to property #2 (and beyond). Firstly, as background on myself, I currently have a full-time job as a management consultant and plan on investing mainly as a way to build additional income and long-term wealth. My job is fairly decent in that in addition to obvious benefits (good salary, health ins, 401k), it is flexible enough for me to pursue outside interests, i.e. RE investing. Prior to this, I worked for two years as a PM for an experienced investor which gave me a great, hands-on exp at managing tenants and dealing with contractors. Two years is nowhere near enough time to learn everything about being a LL, but it did give me a lot of confidence to go out and do my own stuff. Now for the numbers on the property:
Property Description: Duplex with 4BR-2BA total, in a good area within 2 miles of local, large state university; exterior condition is good as it's brick with new metal roof, windows, metal siding on trim; interior has hardwood/tile floors, new ceiling fans, lights, appliances, and paint
Purchase Price: $118,000
Down Payment: $23,600 (with closing costs credit from seller, final number at closing was right at $24,000)
Loan: Commercial loan 15 yr AM, 5 yr balloon, 5.0% interest
Rent: $2,100 (rented to four college students as one group; tenants pay all utilities)
Est maintenance/repairs/cap ex: $300/mo
Projected cash flow: $670/mo or $8,040/yr (est. $4,200/yr in mortgage principal reduction)
Amount spent on repairs: $15,000 (majority spent on new HVAC/duct system and appliances)
CoC return: 20.6%
I think that covers most of the relevant numbers. Apologies for the long post and thanks in advance to those who read through it all! But yeah, any feedback on this and whether I should repeat the formula would be great. I am considering doing a cash-out refinance as I believe the value of the property has increased due to the improvements and for how much it's rented currently. This way I can take the same initial investment and use it for property #2 (like the BRRRR strategy). Is this a good idea??
@Michael Lee I think a cash out refinance is a great idea if your goals are to get more property. What do you think it's worth now?
@Will Gaston Thanks for your response. I think it's worth between 160-170k right now. My goal is to buy more so appreciate the feedback on refinancing.
@Michael Lee Sounds like you can most or all of your cash back out and still cash flow $200-$300/month on a 15 year note with a property that is in really good shape. I say go for it.
@Michael Lee congrats! numbers look great.. curious to know how you found this property and how was was it listed for... tks!
@Hardik Patel Thanks! This one was actually on the MLS. If I remember correctly it got listed on a Fri, I went and checked it out that day and made an offer by that evening. The seller received multiple offers over the weekend so I had to re-submit my highest and best...but my offer ended up getting accepted the following Wed.
List price was 119k and the offer that got accepted was for 123k. After the due diligence period, it was negotiated to 118k which was the closing price. I've gone back and forth whether I overpaid but if so, I believe it was only 2-3k. Given the situation and how it was my first one, I feel like I went about it correctly. But maybe that's just me rationalizing it in my own head haha
I'd be happy with those numbers myself.
Can I ask why you decided to go with a commercial loan and 5 year term vs a longer term agency loan? Would you refi into a similar loan?
Account Closed Thanks! That's a great question re: the loan. I think I initially went with a commercial loan bc I have a relationship with a banker who mainly does those. Plus I was told that the underwriting requirements are less stringent for commercial. The property and mortgage is under my LLC but I had to be the guarantor anyway (not sure if that clarifies the issue). Basically, I just wanted to get the deal done and went with what I thought would give me the best shot at closing it.
As for the refi, I'm not sure at this point. I will say that my knowledge of financing and dealing with banks is one of my weaknesses right now. So any insight/advice specifically on this would be great!
@Michael Lee Just my opinion, but I like commercial portfolio lending for a growth strategy (cross-collaterlization can be a possibility) and agency debt if you're looking to sustain and/or pay down debt.
@Will Gaston Interesting...appreciate the response. I'll def be doing more research into my options if/when I do the refi
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