90 Day Challenge - Complete!
Background
I was initially interested in REI around 2013, but since then pretty much only purchased my personal residences (with equity) and sold as prices appreciated. I've frequently considered rental properties, but never pulled the trigger, until now.
For the past two years, I've traveled nearly weekly for work. With that, long hours on the road, plus travel, and a family at home. I had all the standard excuses ("no time", "too busy", etc etc).
On January 14th, 2018 - I came across Bigger Pockets. I listened to a couple of the starter podcasts, then listened to Episode 247: The 90 Day Challenge. @Brandon Turner challenged listeners to purchase their first property in 90 days (I'm a little late to the game, but that was my first day on BP!). At the end of the podcast, I decided to make the plunge. I didn't know how I was gonna get there, I just knew I was going to. So I told my family and friends, then began my journey for my first rental property.
I'd say in the first week I pretty much binged on podcasts, youtube videos, etc for roughly 6-8 hours a day (actively and passively). I picked up and read a few books as well (I can list those later if interested).
In the beginning, I got a little distracted, because the wealth of knowledge was a little overwhelming. I even tested out a ton of different sites, looked into a ton of different strategies for investing in general. Wholesaling, lease options, seller financing - the list goes on.
Today, March 9th, 2018 - I just closed on my first deal (54 days)!!! I had some points of frustration in the process, but mostly due to it being a first time experience (outside of personal residence).
What have I learned so far?
- Connect with a local investor group.
- Luckily, we have a very active, and very unique group. No sales pitches and no BS. Attended the meetups and met up with a lot of folks for coffee or lunch outside of the regular meetups.
- I learned what bandit signs were.
- From billboards to the little yellow signs. I started writing down every single number and calling. Had a couple of deals fall through (sellers got cold feet), but still active with all of those folks.
- Ride Alongs
- I rode with primarily wholesalers. This is actually where I found my first partner, but I met with lots of folks. One of my weakest spots is in doing repair estimation and really needed some eyes on with someone that had experience.
- Find local lenders
- I was skeptical at first. I did rate shop, but really, none of the traditional lenders could match what I was trying to get. Although there were some issues in the process, my local lender went head over heels to resolve issues throughout the process. I could call, text, or message this guy almost any time day or night and he would respond quick! Good luck anywhere else!
- Lots, and lots, and lots, and lots of offers
- I think I burnt out one of my agents, because he stopped responding after a while. I put in roughly 30 offers myself.
- You can get deals off MLS!
- I ended up partnering with someone who also invests. We saw a property together and he wrote up the contract for offer about 30 minutes later. We were accepted that afternoon.
- Things can change quickly in financing
- Rates have been changing pretty fast lately. Although it might not seem like a ton, a .25% different (plus points) CAN happen in 30 days.
- Some lenders have different down payment requirements depending on SFH or MFH. I initially approached my lender expecting a non-owner occupied SFH that fell through. I never asked if there was a difference if it was an MFH. Turns out, there is. It's a 5% difference in down
- Analyzing gets easier and faster
- I learned some of the tricks for quicker analysis (i.e. % rules, etc). These weren't the end all be all, but gave me a good rule of thumb
- If you focus certain areas/regions first, you already know what to expect for rents. This speeds things up, you learn over time
- Do your best to throw ballpark figures in with pictures, street view, etc. Don't get too crazy and waste too much time. On many of the properties I saw, you really needed to be there for the estimates. Estimate high.
Deal Information
Notes: For my first deal, I opted to partner with another local to manage and repair the property. The equity is a 65/35 split, including costs and profits.
1) Neighborhood
- Class C
- Lots of renovation, on the upswing
2) Property Purchase (Duplex - 3 Bd/1 Ba Units)
Purchase Price: $45,000.00
Purchase Closing Costs: $4,583.00 (final, includes any points, fees, etc)
Estimated Repair Costs: $5,000.00
Total Cost of Project: $54,583.00
After Repair Value $60,000.00
Down Payment: $11,250.00
Loan Amount: $33,750.00
Amortized Over: 30 years
Loan Interest Rate: 5.000%
Monthly P&I: $181.18
3) Income & Expenses
Current Rent:
- Unit 1: 0 (vacant) - 625 expected
- 5k estimated repairs above
- Unit 2: 550
- TOTAL: 1175
Expected Rent (still under market)
- Unit 1: 625
- Unit 2: 625
- TOTAL: 1250
Total Expenses: 693.84
Initial Cashflow: 481.16 (240.16 per door)
Expected Cashflow: 556.16 (278.08 per door)