I wanted to share my first real estate deal with the bigger pockets community. I purchased this property in 2009 for 238500 at 23 years old.. I took a check for about 17k to closing. Obama gave me 8k tax credit in 09 for buying the house. I put roughly 35k into the property (including the 8k from obama) from 09-11. 1 bathroom remodel and 1 full bath install in the basement, 2 kitchens original kitchen painted the cabinets, new appliances and counters, beadboard backsplash, basement kitchen used cabinets painted, paint, landscaping, some trim and new floors in one of the bedrooms, ripped out some carpet while living there with roommates. I guess it was a bit of a house hack as well. The goal was to purchase this property then get it fully rented and move to Colorado for a winter. I made it happen! It was a lot of sweat equity but after learning about the BRRR method I was able to successful get all my money out of the house!
My mortgage payment was 1550-1600 in 09 and i had a few roommates paying 500, 500, and 600. The basement was setup as somewhat of a studio apartment. I’ve had to kick 1 tenant out, had one tenant leave water all over the basement floor, had to replace the line for the septic system and spent about 8k on the well. Overall the property has been easy to manage and typically cash flows about 4500 a year.
Just closed a week or so ago on a successful cash out refinance. After 8 years of owning the property the loan balance was 202k. I got the house appraised with a target value of 350k. The appraisal came in at 355k and I maxed out the loan to 75% LTV and was able to get 60k out of the property!! So now I have zero money invested on a property that pays me $600 a month, thats a pretty good ROI! Rent 2300 a month for the entire house and new mortgage payment 1700. I just got a second property under contract and will be using the 60k to rehab this distressed property and repeat but hopefully on a faster timeline of BRRR.
Now here is the only other thing I am considering with this property. I currently have 90k in Equity!! So my ROE- return on equity, is actually pretty low. If i have zero expenses its a 8% return on equity. My goal is to see if the current tenant wants to purchase the house via owner financing for a few years, make some interest on the balance and then get my remaining 100k out of this property to invest in a bigger deal.
Please reach out if you have any questions or if I can help in anyway! My overall return on this property has been amazing and is the key to building wealth! To have assets that have zero money invested in them that pay you every month, build in equity, build in appreciation is the triple threat that real estate investing can offer! My goal is 40 units by 34 years old and then start with some syndication.
Congratulations @Braden Burton ! Great goals, too!
Congrats just make sure you are also accounting for all of the other expenses such as CapEx, maintenance, vacancy, property management, etc. In your post you are basing your cash flow simply off the mortgage payment.
I agree with @Brian Garrett , you are not accounting for any maintenance capex. Does that loan amount take into account taxes and insurance? I know sometimes banks have you pay that amount with mortgage. You will get hit with a roof replacement or some large expense of say 5k-10k, which will knock out 1-2 years of your "cash flow".
This is a mistake too many house hackers make, they say "I only paid $300 in rent with my friends paying my mortgage", but haven't factored in vacancy, maintenance, capex, etc.
Regardless, you bought at a good time, and enjoyed some appreciation. Well done!!
@Brian Garrett for sure man. Total income-debt service is 7200. I self manage the property with my brothers and typically account for around 3000 in total expenses, capex etc. Current tenant is on long term lease so no vacancy to consider necessarily. I have had the place vacant for 2 weeks total over the last 8 years. So gross monthly 2300, payment, interest, taxes, insurance are 1700. so 600 a month for all other expenses. I typically account for 300 a month of expenses which is pretty high and mostly capex or an appliance repair here and there.. regardless at this point the property is still having loan paid down and has zero money invested into it.
Thanks for your comment!
@Braden Burton you still have nearly $89k in equity in the property, although you didn't personally put that in. That makes your return on equity 4% based on $3600 annual cash flow.
Exactly Charles, that is why I might look at selling the property in the next few years to leverage the money into some larger deals. The house is in a nice area and is super easy to manage. When calculating return on equity do you account for the increase in equity, amount of principle that is being paid down into the calculation? I typically don't and do it just how you did based on cashflow. If looking at total ROE including equity,appreciation and cashflow it makes it a little better but still not a great return.
I agree that having 90k in this property and cashflow of around 3600-4000 is not great. However the fact that I actually have zero money invested in this deal at this point its not the worst return.
Having zero money into a cash flowing and appreciating asset is never a bad thing!
@Braden Burton Congrats and good work!
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