Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
Hey guys!
Thanks to all the inspiring stories on this forum and the podcast, the hubs and I are taking massive action getting our finances in order to qualify for the best possible mortgage on our first rental property. Currently getting my RE license, so I can access MLS and begin analyzing more deals.
Already found an amazing agent and speaking with several lenders to find one who will lend on our desired terms: 3.5% down owner occupied on a multi-unit (tri or quad) in my local market. We're looking to build a long-term rental property portfolio.
My question to you experienced investors is how did you get started? I'm curious about the following specifically:
1. Did you buy a SFR or a multi-unit for your first property?
2. What type of loan did you use? What was your downpayment?
3. What was your initial cash flow after all expenses? (not including tax benefits/equity/loan pay down)
4. Did you have any land-lording experience or did you hire management right away? (will budget for it regardless, just curious)
Most importantly, would you do anything differently, looking back on your first deal?
Thanks so much for your responses on any of the questions!
My first investment was a townhome. I knew nothing about rentals except that wealthy people had them so they must be worth the effort.
My father-in-law was a REALTOR in a town I planned to move to and I had saved up about $10,000 so I asked him about rental property. He said he knew a property that would make a good investment and we bought it based on his recommendation without even seeing pictures. He told me the monthly payment would be $450 and it would rent for $650 so that sounded like a good deal to me. I didn't know about the 1% rule, the 50% rule, setting aside money for capex and expenses, or any of that jazz.
The truth is, those rules didn't really matter. I bought the property with about $6,000 in down payment and closing costs. Rent rates went up, my mortgage went down, and I made a good return with the investment despite knowing nothing about investing. I set aside all the cash flow and built up a reserve. I paid for new flooring, paint, windows, and even a special assessment of $4,000 for roof and siding and everything - literally everything - was paid for from the money I set aside. In other words, once I bought it I didn't have to put another dime of my money into it. I sold the property ten years later and my initial $6,000 investment brought me a return of $65,000 cash in my pocket.
There were some hiccups along the way but it was a good experience and wet my appetite.
My first rental was my first primary residence. I bought it in 2010, FHA financing, and got an $8000 cash credit from the government. Turned it into a rental when I moved in 2013. It didn't cash flow well but the maintenance and expenses were next to nothing and because I purchased at the bottom of the market, it appreciated well. I hired Property management due to moving out of state. It was a great first investment and helped get the landlord juices flowing....
Cool. It seems that's how a lot of people fall into investing. We do not currently have a mortgage, so we're hoping to go into our first one with as much knowledge as possible. We will probably only do the OO loan one time.
That's awesome you got started back in 2010! I wish I had known the beauty of real estate investing back then...
I was just wondering if getting a duplex, and living in one of the units is a good way to start out. I am also useing FHA, and I know they have regulations. any info would be greatly appreciated. Also my aprovel was for 170000 with 5000 for closing cost.
@David Thibodeau I am in no position to give advice so I suppose it just depends on what market you're as far as what you can get for that pre approval amount. If you can find a deal on a duplex that will let you live for a lower cost than average rent in your area after the other unit is rented out, then it may be worth it for you. Others don't want to do a deal unless it will give them monthly cash flow as well or they can live for free in the unrented unit. If you live in one of the units for one year FHA usually approves 2-4 unit properties also, sometimes with the 3.5% downpayment too, according to the research I've done.
Dr. Jordan E Smith my first rental was an out of state single family, with 20 percent down and 30 year fixed financing. Nothing showy. Knowing what I know now, I overpaid for it but it still cash flows and should be relatively maintanence free the first 5ish years outside of if/when tenants move out. Rented to great tenants. Pay online every month on the first like clock work. I wish all Tenants were like that lol
@Caleb Heimsoth That's awesome! Thanks for sharing. Seems like the SFR are typically easier management and can be worth the slightly lower cash flow and potentially greater appreciation. We are considering SFR as well especially considering we will be occupying it for a year at least.
1. Did you buy a SFR or a multi-unit for your first property? SFR
2. What type of loan did you use? What was your downpayment? Use as many 20-25% down loans from fannie and fredie(conventional financing) as you can or BRRRR. If you need references to local Mortagage brokers I have used multiple times please PM me.
3. What was your initial cash flow after all expenses? (not including tax benefits/equity/loan pay down). In North Metro Cobb, Gwinnett, etc, you should make 300-500 cash flow after P.I.T.I. (Principle, interest, taxes, insurance). Dont forget 8-12% of monthly rent for NARPA member Property manager.
4. Did you have any land-lording experience or did you hire management right away? (will budget for it regardless, just curious)
THE ULTIMATE KEY TO WINNING AT SFR IN METRO ATL IS A GOOD PROPERTY MANAGER. THEY WILL BE THE SINGLE GREATEST INFLUENCE TO YOUR SUCCESS. I behoove you to interview 5 of them. google NARPA to find references.
1. Did you buy a SFR or a multi-unit for your first property? I bought a SFR.
2. What type of loan did you use? What was your downpayment? My situation was a little different. Because the price was kinda low and I wanted to make a quick deal I paid over half in cash. The price was low enough that I could. And because of that, I had to take out a secured loan and small personal loan for the balance of payment.
3. What was your initial cash flow after all expenses? (not including tax benefits/equity/loan pay down). Right now my net of expenses including loan payments are at about 75%. Take out loan payment, down to about 61%. The rest goes into CapEx savings and saving for taxes.
4. Did you have any land-lording experience or did you hire management right away? (will budget for it regardless, just curious). No land-lording experience. There was a property manager already in place so I just stuck with them.
Rent Collected: $19,862; Net Income: $5,110; Investment $34,041; Yield: 7.36%;
Projected 15-Year Yield 14% and Total Return 20%
4. Did you have any land-lording experience or did you hire management right away? (will budget for it regardless, just curious)
PM right away $91.88 a month; $1,000 up front in escrow for emergencies or repairs.
They advertised and vetted the applications and it leased the first week on the market and now is in its 2nd year leased with the same tenant. Lease is up in June and will be increased by 5%.
My first investment was a townhome. I knew nothing about rentals except that wealthy people had them so they must be worth the effort.
My father-in-law was a REALTOR in a town I planned to move to and I had saved up about $10,000 so I asked him about rental property. He said he knew a property that would make a good investment and we bought it based on his recommendation without even seeing pictures. He told me the monthly payment would be $450 and it would rent for $650 so that sounded like a good deal to me. I didn't know about the 1% rule, the 50% rule, setting aside money for capex and expenses, or any of that jazz.
The truth is, those rules didn't really matter. I bought the property with about $6,000 in down payment and closing costs. Rent rates went up, my mortgage went down, and I made a good return with the investment despite knowing nothing about investing. I set aside all the cash flow and built up a reserve. I paid for new flooring, paint, windows, and even a special assessment of $4,000 for roof and siding and everything - literally everything - was paid for from the money I set aside. In other words, once I bought it I didn't have to put another dime of my money into it. I sold the property ten years later and my initial $6,000 investment brought me a return of $65,000 cash in my pocket.
There were some hiccups along the way but it was a good experience and wet my appetite.
My first, and so far only property is a duplex in Burien WA. Purchase price $200,000 FHA 3.5% down. Moved into the rehabbed side and remodeled the other side while I lived there. First I have to get rid of my AWEFUL inherited tenant. After a year I moved out of state and handed it over to a PM. Also, I refinanced conventional and dropped the PMI. Cashflows $500-$600 a month. Got lucky that I bought in Seattle just before the boom. I’ll have my next out of state rental by the end of this year. The snowball is rolling!
@Dr. Jordan E Smith buy a Fourplex. You get a limited number of conventional loans on 1-4 unit properties. After 4 loans it gets much more difficult. You could buy 4 Fourplexes and have 16 units or 4 sfr and have 4 units.
We bought side by side duplexes in 2013. Then 6 fourplexes 2014-2016. 7 unit building in 2016 and closing on 5 unit next week. All with 25% in Everett Wa near Seattle. Proforma cash on cash returns of 11-20%.
Like many, my first rental was my first home. I upgraded and since it was a bad time to sell, I just kept it. 20% down conventional. Cash flow was like $650 since I owed very little on it and refinanced.
Second investment property was the home I upgraded too. I was transferred out of state, 20% down. Cash flow was only about $100 to start.
Third property was my first real investment property. SFR, 20% down conventional. Again, $100 to start.
I hired management after I moved out of state. If I were to do it again, I would have
A) Hired management from the beginning
B) Downgraded instead of upgraded so I could have bought two or three properties instead of just one
C) HELOC'ed the first property right away and bought another one or two with the HELOC
First house was SFR 3-2-2 1320 sf we paid $123k for in 2015 now worth $165k. 20% down and $3k in rehab. $750 total payment and it rents for $1250. 30 year fixed financing on conventional loan.
I had no experience when I started managing it but have learned tons and tons in a few short years.
We currently have 3 rent houses and we are about 6 months away from purchasing the next.
3. I am not essentially cash flowing... but after I move out, I estimate a cash flow of 300-400
4. Self Manage, I read up on the state landlord laws, felt it was best to prep and know what I was doing, and have not had any major hiccups thus far.
Would I do anything differently.. I don't think so! I think it was an excellent learning experience, and its kind of scary "jumping in" but that's what makes it fun
1. Did you buy a SFR or a multi-unit for your first property?
SFR, But I didn't actually buy it, it came with my wife :)
2. What type of loan did you use? What was your downpayment?
She used 3.5% down conventional at 4.5% (pre-paid PMI). She put like $5,500 down. We lived in the house for about a year after marriage, then moved out and turned it into a rental.
3. What was your initial cash flow after all expenses? (not including tax benefits/equity/loan pay down)
We had about $150/month left over after the mortgage. It was more of an equity play. Her original $5,500 is now about 40k in equity.
4. Did you have any land-lording experience or did you hire management right away? (will budget for it regardless, just curious)
I was scared to manage, so I hired a PM. Second tenant quit paying and I couldn't get in touch with the PM. I fired the PM and kicked the tenant out myself. I realized it's not so hard or scary. Just study the laws and the proper way to screen. Don't get mad when people miss rent, just take the proper steps to remove them if the delinquency isn't remedied.
Most importantly, would you do anything differently, looking back on your first deal?
My first rental investment property was a 1980 built triplex in south seattle, bought 2006. three 2br/1ba units. This was near the top of the last RE bubble for seattle, so I probably paid too much but I had to make a full price offer (at least no escalation clause was needed) to beat out other buyers. I had looked at a lot of similar 2-4 unit properties over the prior several months, and this one despite being in a challenged neighborhood (for the time) was the best option and had some amenities I wanted for a place I was going to live at for a few years.
I used 30 year conventional FHA mortgage, and rolled all the proceeds from the sale of my SFR into it, so I came in with about 50% down on a $410k purchase price. That got refinanced a couple times in the intervening years.
I lived in one unit, used the basement as my workshop, and inherited 2 good tenants (lucky) from the prior owner. At the time the rents were $765 and $800.
This was my first rental property and my first experience as a landlord. I was and am good at fixing/repairs (I come from a DIY family and spent prior 6 years fixing up my SFR, pretty much all aspects) but I didn't know too much on the management/investing side, so I took a few local night classes to familiarize myself with that.
I self managed this property (and subsequently purchased ones) up until March 2017 when I hired a PM, mainly in response to Seattle regulations, to position myself for further scale, and to get some free time back. (I have a day job too)
Since I was owner occupying one unit I wasn't too concerned about cash flow, but the rents vs. purchase price would have worked out to about 5% cap rate on actuals, that was about the going return for south seattle small MF's at the time. (north seattle, like now, was well below that)
I still own the triplex, Today market rents are about 75% higher than they were when I bought, and I have fully renovated the building and added value via various improvements. Its almost paid off now, I'm debating various options. Its solidly in cash cow territory right now and zero deferred maintenance, but my ultimate plans are trading up to something bigger.
As for what I would do differently:
I got fairly lucky on a couple aspects with the triplex buy, beating other bidders and getting decent tenants from the get go. I did pay my dues in dealing with a lot of deferred maintenance and dealing with a rough neighborhood for the first few years especially. A little nicer area would have reduced that drama and attracted more quality potential tenants during vacancies. I was (and still am) probably more conservative about leverage than many people on this forum. I am doing just fine but I could have grown faster with somewhat more leverage and being more aggressive about collecting more properties sooner.
I'm not great with networking/door knocking to find off market deals, I probably could have found some stuff doing that, especially 2008-2011 time frame (when I bought my (listed) duplex - not a bad buy but there were other properties that came and went for a similar price that would have been larger/better if I were more aggressive and had jumped sooner)
Like many first time landlords, I was probably too chummy with the tenants and probably should have been more aggressive with rent increases over time. I did make 2-3% increases most years while I was self managing, with the PM rents have gone up 15-20% in the last year and a half, and I'm still about 10% below market on most units (I have a lot of LT tenants). However, the stability and risk reduction as a newbie wasn't all bad.
@Account Closed Doing it right! Love reading specific numbers as you listed, so thank you very much! Super helpful and lets me know I'm figuring my numbers right.
That's great cash flow on a SFR especially from what I've researched so far.
@Account Closed wow so cool! That's exactly how my hubs and I were planning on getting started, but now we may have a line of credit available to us soon so we may do a 20% down if we can work it out.
Wanna get our snowball rolling too!
Thanks for the response and great job on your first investment! Good luck with the next!
@Account Closed Thank you thank you! I love hearing advise on whether to get a duplex, tri or quad because I still go back and forth on it some days. If we can take our a line of credit we may have available to us soon, we will try to do the quad with a 20% down payment. Sounds like you get great returns also.
