How I dove into REI with a 7-plex and a modest income w/ pictures
Thank you @Brandon Turner! On March 1st, 2017 I watched my first BP webinar (How to Buy Your First (or Next) Rental Property in 90 Days or Less Webinar). I stumbled onto Bigger Pockets and this webinar as a college buddy forwarded me one of the weekly emails that BP sends out. 74 days later I had a contract on my first investment property! Here is my "success story" which many times during the process didn’t feel so successful.
After watching this first webinar, I was hooked. I was (and still currently am) making roughly $40K a year working for a Christian non-profit. I started to realize that if I were going to pay for a wedding for my daughter or pay for my kids to go to college, something had to change. My parents have both been small business owners the majority of my life, so the concept of a rental property wasn’t foreign as they had a few of them themselves.
(Here are a few initially pictures; more at the bottom)
Time-line:
- March 1st, 2017 // 1st BP Webinar
- March 2nd - May 14th // Education and started making offers
- Sunday, May 14th // Secured a contract on a dilapidated 7 Unit apartment building
- Monday, July 31st // Closed on 7 Unit building
- August 1st - November 9th // Demolition, determined corse of action, & interviewed contractors
- Friday, November 10th // Signed contract with a contractor to do the majority of the rehab
- Friday, December 1st // Started advertising the apartments for rent
- Monday, May 1st @ 4:00am // Finished rehab
- Monday, May 1st @ 9:30am // Tenants move in
Numbers:
- Purchase Price: $56,000
- Rehab Costs: $100,000
- Conservative ARV: $208,000
- Gross Income: $3,411
- Monthly Cash Flow: $839 (After Refinance)
- COC ROI: 817.6% (After Refinance)
Education
- A month before watching my first BP webinar, I was helping my dad at my parents lake house when he received a phone call from a Colorado investor who used my dad to renovate a house (BRRRR) just months prior. This guy (Shout out to Danny Chrisafuli) was contacting him RE another project he had purchased in the Kansas City, MO area. I was confounded as to how he was able to repeat the process so quickly. This started a real desire to figure out how to get started in Real Estate… but I honestly didn't know where to go.
- It wasn't until watching "How to Buy Your First (or Next) Rental Property in 90 Days or Less" webinar that the rubber began to meet the road for my REI career. Through this webinar, Brandon gave me a practical step-by-step guide on how to go from where I was to a property investor. I called Danny and started to pick his brain. I reading every article I could get my hands on from BP. I watched every webinar I could find on REI. I also got in contact with the real estate agent who sold my wife and I the home we live in and asked her to start showing me potential investment properties. I was committed to seeing this through within 90 days.
The Purchase
- In the middle of March I continued to educate myself, crunching the numbers in the BP calculators, and then putting in offers. It was super helpful to hear Brandon Turner say, "98% of the listings on the MLS are NOT deals!". This gave me courage to put in an average of one offer a week. Nine weeks later I had a contract on a 7 Unit apartment complex! The list price was $85K but I was able to purchase the property for $56K due to the dilapidated condition and motivation of the seller.
Strategy (BRRRR)
- After talking with Danny and watching my fair share of webinars - I was set on using the BRRRR strategy for whatever property I would purchase. Using the funds that we had saved up to purchase a new car, I convinced my wife (she's a saint) to reallocate the money in order to purchase an investment property with the expectation that we would be able to refinance the money back out in 12-18 months to then purchase a needed newer vehicle. We also secured a HELOC on our primary residence to use for the rehab costs.
- My dad, a seasoned contractor in Kansas City, MO, drew up some plans to turn the building into a fourplex. I initially really wanted to have the nicest units in my town while having a fixed 30-year mortgage, thus needing to be four or fewer units. However I simply could not get the numbers to work with it being a fourplex, thus I left it as a 7-unit building… and boy am I glad I did! After further research I realized that studio & one-bedroom apartments in my town (Maryville, MO) are VERY popular and there is a shortage of them. I have also fallen in love with the way I can control the property value with the income approach to appraising a 5+ Unit apartment building.
Financing
- I honestly only talked with one small local bank in my area. I purchased the 7 unit building with a commercial loan and then secured a construction loan through the same bank once deciding on a plan of action. After the completion of the rehab we restructured the loan, rolling the rehab costs (construction loan) in with the original mortgage… all for 5.5% amortized over 30 years.
Securing Tenants / Property Management
- Once again, I just started reading articles and books, listened to podcasts, and sought to educate myself on how to do this well. One article I stumbled over on BP led me to the realization that I could start marketing my property long before the completion of the rehab. I set up an account with cozy.co and then started advertising for rent in December even though the project wouldn’t be completed until the end of April. Ironically people still wanted to see the physical building even though it was down to the studs. This caused me to cast vision for what the units would be, not what they currently were. I was really just selling tenants on what I envisioned.
Emotional & Spiritual Life
- Starting with a 7 unit building was… well… A LOT! This caused me significant stress. There were many times of coming up against roadblocks which made me really wanted to quit. But every time that I would look back (figuratively) at my family, I knew I must move forward.
- I grew in understanding it is well with my soul (or it should be) regardless of what happens. Whether the deal is really fiscally successful OR it is a doozy, there is peace to be had in the Sovereign, Good, & Wise God. It also became apparent that I have found some of my identity in how I manage my finances. Or my identity being in “what people think of me”. When this project started to go sideways (I was $40,000 over budget), I started realizing that my increasing anxiety was rooted in what my parents, supervisor, lender, friends, etc. thought of me. Thoughts like “I am so stupid” started to creep in - a sign that my identity was misplaced and needed to be further rooted in Christ.
Vision for the future
- Where am I going? I closed on a 3/1 house a couple weeks ago, and with a little rehab it should be rented by November 1st. Big picture though, I am looking to invest in multifamily housing (5+ units) in Missouri (both local and out of town) until I reach $10K in passive income.
Pictures
(Kitchen in Unit #5 - Before)
(Kitchen in Unit #5 - After)
(Bathroom in Unit #5 - Before)
(Bathroom in Unit #5 - After)
(Shower in Unit #1 - Before)
(Shower in Unit #1 - After)
(Bedroom in Unit #2 - Before)
(Bedroom in Unit #2 - After)
Updated Electrical