Hello BP! I purchased my first property in December and I would love to share the process with everybody here, maybe others will get inspired to buy their first or next property even in this crazy market.

My property is a 4 unit in Rhode Island that I purchased with an FHA loan. It was listed at 409k , and I offered 480 with an escalation clause up to 500k. Crazy, I know but I figured it would still cashflow even at those numbers. I also believed it was priced low.

My offer was accepted, but the appraisal came in at 420k. Neither we not the seller believed that to be accurate given the area and comps that we found so we ordered a second appraisal. And boy were we right...the new appraisal came in a whopping 2k more. Luckily FHA has a clause that lets you back out if the value of the property is lower than the offer price. So we renegotiated and landed on 430k (8k out of pocket).

The property has two 3 bed 1 bath units (1200 sq ft), and two 1 bed 1 bath units (600 sq ft). It was fully rented and according to the seller's agent 2nd and 3rd floor were problem tenants and they were related. The two 1 bed units on the first floor were 2 quiet old ladies with section 8. In order to get my offer accepted I had to put in the contract that I will take over the tenants and it wasn't the seller's responsibility to get them out because I found out that the seller was the widow of the guy that actually handled the property for 50 years so she knew nothing about being a landlord and she just wanted to get out and move to Florida.

Perfect, now I know what the seller wants and how to give it to her, but what about the tenants? BP podcasts always speak about figuring out what the seller wants and fixing their problem. But what do the tenants want? Why were the tenants on 2nd and 3rd floor problem tenants?

I went and talked to them and found out that the 3rd floor tenant is the son of the 2nd floor tenant. Also on the 2nd floor everything was nicely organized in their home, fresh baked goods on the table every time I went in their apt, and very nice friendly conversations. They also lived there for 17 years.

I quickly realized that it wasn't the tenants that were the real issue but the landlord. The tenants knew I was buying the property as an investment and they knew that there's a chance they were getting kicked out. So I made them a proposal... I told them I wouldn't kick them out, and I wanted the guy on the 3rd floor to move to the spare bedroom on the 2nd floor so that I can renovate 3rd floor as soon as I close on the property. Afterwards, when I'm done renovating the unit, I'll rent it back to them at market rent and that way I have access to 2nd floor right away to renovate that. They absolutely loved the idea. They were finally getting their dream home (their unit was in bad shape because the previous landlord was a slumlord) and they didn't even have to move.

I just finished the renovations on 3rd floor (pics below) and rented it to them. Before I bought the property they were paying $750, and now they signed the lease for $2200. Market value was $2300 , I gave them $100 discount and waived the pet fee, but I made them responsible for snow removal/lawn care. They were thrilled they were getting a good deal on a brand new luxury apt, and I was thrilled I can start the next renovation without any delay.

The rents for the first floor units were $850 and $950 with section 8. When I closed on the property , I called the housing authority, introduced myself and told them I bought the property as an investment and I wanted to work with them to keep the current tenants but I need to increase rents and I wanted to know if the government can give them more money.

They were very happy that 2 of their tenants won't be losing their homes so they offered to give me $1075 for each unit starting in March. Perfect! My next question was, what is the maximum amount that they pay for a 1 bedroom apt? the answer, $1100. So with one phone call I basically got almost maximum rent for 2 units without spending a single dollar on them. That's great ROI :)

Now let's talk numbers:

Purchase price: 430k

Cash to purchase: 30k

Renovation Budget:100k

Total rent (including forecast for 2nd floor) : $6650

Expenses (mortgage, insurance, taxes, flood, pmi, etc) : $3140

Vacancy 5%, Repairs 5%, Capex 5%

If I hand it off to property management at 10%, my cashflow will be $1944

If I manage it myself, the cashflow becomes $2609 with a 23.93% CoC ROI.

As promised here are the photos :