First Investment Property - Havelock, NC
I am hesitant to call this one my first "deal" for two reasons: (1) I haven't closed on it yet and (2) the circumstance of absolutely needing a residence to live in took precedence over taking my time to find a killer deal with concrete criteria.
Finding the Deal-
I had a weekend to see 16 properties that I had narrowed down on the MLS to be the best "deals", with all things considered (distance from work, neighborhood, market rents, VA eligibility, etc etc). I knew I would be PCSing from Quantico, VA to Havelock, NC in the next two weeks so time was of the essence. I drove down to NC and looked in New Bern, Havelock, and Morehead City. I came across two REOs that met the 1+% rule with 80-85% ARV for minimal work. I was dead set on getting one of these, but to my misfortune, an investor bought BOTH for cash. My VA financed offers didn't stand a chance. The whole ordeal made me more curious then disappointed. I'd still like to meet him. Regardless, this left me with limited options.
TANGENT: Just to be clear, I realize that VA loans are for owner occupants, and I have every intention of making this my primary residence. With that said, I was also looking at these properties with an investor mindset. Eventually, I knew that this property would become a rental and I would be living in it for the time being.
Back to the story. A couple short sales and retail priced properties were all that I had left on my list. I had seen a 2 bedroom 2 bath town home that was over-priced in my opinion. My agent was adamant about showing it to me, even though it was not on my vetted list of properties (probably because it was a dual agency situation?). The sale price was 83k and the property was move-in ready. I remember looking at the property and being unimpressed, from an investor standpoint. As we left the property I told her that I would probably offer 74k on the property, hoping for a 75-76k compromise, if it came down to it. She told me not to embarrass her and "that kind of offer will make the seller mad at you". I guess a mad seller makes for poor negotiations? I won't go on a rant about my agent, but its needless to say that I probably wont use her again. Great retail agent, but not investment savvy.
Once all of my other offers fell through on the REOs, I decided to make the offer on the town home. This killed me because I was really looking for a fixer upper, but my hand was forced due to the time restraints. I came in at 74k. Seller counters: 75.5K. Real estate agent is stunned. I counter 74.5K. We agree at 75k. This reinforced a valuable lesson. Listen politely, and continue with whatever you were going to do anyway. 75k wasn't an arbitrary number thrown out there for no apparent reason. It was the price in which I would be cash flowing, give or take, $100 per month if rented. This would also leave room for the financing of closing costs (which I am strongly considering) to improved my COC return and ROI. Overall, I'm pleased with how the purchase has went, but I definitely need to be more diligent in the future as I start to use more of my own capital or private funds. Currently, we are negotiating some minor repairs to the property and ending due diligence. Should close by the end of the month.
The Numbers-
Sale price: 75k
Loan: 80k (closing costs financed)
Rent: 775
Taxes: 74
Mortgage: 388
Insurance: 66
Maintenance/Repairs: 38
Property management (11%): 79
CAPEX: 60 (relatively new big ticket items)
Cash Flow (self managed): 94
I'll have roughly $700 to put towards closing costs and $900 to spend on appliances. That is $1600 down. This comes out to a 208% ROI and a 71% COC. I have every intention to self manage this for the duration of my career so there was a bit of selective over sight on that particular expense. I used a very conservative rent estimate to analyze this property based on the comps and the basic allowance for housing in the area. Also, the fact that I had to buy in an expedient manner sort of helped me justify "fudging" the numbers. Going forward though, this cannot happen. My analysis has to be day and night. Deal or no deal.
Parting Thoughts-
I have to say, the VA loan came in clutch. It doesn't kill your cash flow with PMI and still offers 0% down. I will make back the amount I put down in the first couple months of having a roommate. With regards to to the "deal", please don't hesitate to poke holes into/comment/question this post. I am still learning the ropes, and I view this transaction as my training wheels into off market deals with strict criteria. I'll make sure to write a follow up post with how closing went and my plans going forward.
-Paddy