What was your first investment property?

General Landlording & Rental Properties
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What was your first investment property?

Dr. Jordan E Smith
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! 

Dr. Jordan 

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
8y

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.

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  • Dr. Jordan E Smith
    OP
    Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
    8y

    @Martin L. Thanks for the tip on getting a PM right away. We are also looking into the HELOC for our first property. I'm just looking into detail on how we pay the loan back and such.

    Thanks for the reply!

    0Reply
  • Dr. Jordan E Smith
    OP
    Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
    8y

    @Alan Pederson wow that's awesome. Thanks so much for sharing and best wishes on your next purchase! 

    0Reply
  • Dr. Jordan E Smith
    OP
    Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
    8y

    @Steve Bracero wow great interest rate on that loan! and good cash flow once you move out. Can't wait to jump in ourselves. Thanks for the reply! 

    1Reply
  • Dr. Jordan E Smith
    OP
    Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
    8y

    @Rob Drum Thanks! It is neat hearing peoples' stories! 

    What a great deal getting your first rental with your spouse! lol Seems like the SFRs offer great equity if tended to. 

    Def looking at hiring PM right away myself so I can keep seeing patients (and don't get the 3 am phone calls, hopefully). 

    Thanks so much for the reply! 

    0Reply
  • Dr. Jordan E Smith
    OP
    Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
    8y

    @Brian Hughes Cool! Yeah sounds like paying the 8-12% for PM right away can save a lot of headaches although I do still intend to learn all the state landlord laws anyway. 

    Thanks for the reply! 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y

    @Dr. Jordan E Smith

    1. Multifamily (duplex)

    2. Commercial loan, no down payment

    3. Cash flow of $500 per month after expenses including loan payment.

    4. No experience, just read a book and jumped in. I didn't even know property management was a thing at the time.

    If I could change one thing, it would be getting started sooner. I moved pretty fast after I decided real estate was my best option, but the real secret of real estate is acquiring as much as you can as early as you can. Time is your best advantage in real estate or most any investment for that matter.

    1Reply
  • Brian Hughes
    Seattle, WA · Member since 2017 · 275 posts · 223 votes
    8y

    @Dr. Jordan E Smith

    I suppose it depends on region and portfolio and various other factors, but PM rates vary.    The credible quotes I got for management ranged from about 7-10%,  factoring in lease-up and other fees.    In more expensive markets you might see lower rates since the net for the PM would be the same.

    Self managing for a while was very educational,  but I know I made a few mistakes along the way.   Fortunately,  I never got burned (just a couple minor singe-ings).   I always planned to ultimately hire a PM,  though my timeframe got pushed up on it a few years no thanks to Seattle's shenanigans.

    0Reply
  • Dan ShelhamerPro Member
    Realtor · Mesa, AZ · Member since 2015 · 163 posts · 99 votes
    8y

    @Dr. Jordan E Smith

    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?  I used a conventional 15 year loan (4% interest rate) with 20% down.  In 2 years since I bought it, I am now refinancing it because it has almost doubled in value.  I will be switching to a 30 year loan because my goals have changed and I want to scale up and realized that a 30 year is the way to do that.

    3. What was your initial cash flow after all expenses? (not including tax benefits/equity/loan pay down) Cash Flows around $375/month at about a 23% COC return on a 15 year mortgage.

    4. Did you have any land-lording experience or did you hire management right away? (will budget for it regardless, just curious)  I house hacked my primary home so I had some minimal experience, but definitely not the same when you're renting to friends and family vs. a real tenant.  Highly recommend house hacking to begin with to get the owner occupied rates and then move after a year.

    Most importantly, would you do anything differently, looking back on your first deal? Electronic payments from the start!  Also, have a clause in your lease that tenant is responsible for pipes freezing up!

    2Reply
  • Dr. Jordan E Smith
    OP
    Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
    8y

    @Dan Shelhamer Cool! Great advice there I appreciate it. We also will go with the 30 year for the same reasons. Those are good returns on a 15 year tho! 

    Thanks for the response! 

    0Reply
  • Dr. Jordan E Smith
    OP
    Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
    8y

    @Joe Splitrock wow I love what you said there at the end about getting started sooner. I am itching to work out financing with our first rental property and have been analyzing deals in the mean time. I honestly cannot wait to officially become a real estate investor. 

    It's so true that sooner is better with any investment and I hadn't really applied that concept to rental properties in my head yet. 

    Sounds like your first investment was a great one! 

    Thanks for sharing! 

    0Reply
  • Dan ShelhamerPro Member
    Realtor · Mesa, AZ · Member since 2015 · 163 posts · 99 votes
    8y

    @Joe Splitrock can you explain how you did a commercial loan with no down payment on a duplex?  I thought commercial loans were only on a 5+ unit property. 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    8y
    Originally posted by @Dan Shelhamer:

    @Joe Splitrock can you explain how you did a commercial loan with no down payment on a duplex?  I thought commercial loans were only on a 5+ unit property. 

    It was a business loan held by the local bank. It was 20 year amortized payment with 5 year balloon. The loan was done back in 2003 and was only for $80K. I am not sure what the difference is between a commercial loan and a business loan - maybe I am using the terms wrong. I also owned a commercial property that had retail space mixed with apartments. That loan was also directly from the bank as a business loan, but in that case I had a down payment.

    When buying smaller properties, you don't need to get a conventional mortgage although people often choose that for long term and low rates. Small banks have lots of latitude on lending. They generally have a loan committee that approves the loan, so they have latitude to approve more than an underwriter who has more rules to follow.

    1Reply
  • Dave Van HornPro Member
    Fund Manager · Wayne, PA · Member since 2009 · 1k+ posts · 1k+ votes
    8y

    Good idea for a forum thread @Dr. Jordan E Smith!

    So let's start from the top

    1.) Multi-unit. It was a duplex that I was looking to move into with my family.

    2.) Traditional financing - Owner occupied FHA mortgage. I always like stressing to newbies this can be one of the best ways to buy your first place.

    3.) I didn't technically cash flow initially but with the cash flow from the other unit I was able to cut my rent in half. I've since rented out both units and even added garages (and even a shed) that I've rented out separately, making it one of my highest cash flowing properties to date.

    4.) I mostly learned by doing with this one. I did get a little bit of guidance from other Real Estate Agents who were also investors at my brokerage. I managed it myself since it was a unit where I lived and went on to become a property manager years later, managing over 100+ units.

    Ironically enough, today I only outsource property management for my personal portfolio and I mostly only invest in Real Estate without tenants/maintenance/etc through Note Investing.

    The only thing I'd do differently: I would have bought 4 units instead of 2! The only trouble was and is, that quadraplexes can be hard to find. Especially in an area you'd like to live.

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  • Dr. Jordan E Smith
    OP
    Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
    8y

    @Dave Van Horn I keep hearing that about quads that they are hard to find sometimes but the way to go. 

    I also just learned what note investing is. It sounds like a neat way to invest if you know your stuff. 

    Thanks so much for the response! 

    1Reply
  • Matt P.
    Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
    8y
    I bought a SFR that had been on the market forever in a small town for 25k. Put about 6k into it and leased it up. 6 months later it appraised for 75k and I pulled back 50 to repay myself and buy another property. cash flows around 100 a month after I put funds back for reserves and pay the mortgage. I have had it leased to the same people for 2 years and have increased rent once so far. It's been a great property and allowed me to buy a duplex and do the same thing to it. Now I'm doing it to a quad. I love this strategy.
    1Reply
  • Dr. Jordan E Smith
    OP
    Alpharetta, GA · Member since 2018 · 67 posts · 28 votes
    8y

    @Matt P. I love it! So motivating to hear other people's stories! 

    Thanks for sharing :)

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