First buy and hold deal Baltimore city
Hi all. I wanted to share my first deal here as I've seen some other people do. I learned a lot during this process and wanted share with others.
The house is a 3 bedroom/1.5 bath in Baltimore city in Harwood, a neighborhood just to the east of Charles Village.
Purchase price: 136K
Down payment: 25%
Interest rate: 3.6%
Closing cost: $11,087
Rehab: 16K
Rent: $1700/month
Total cash in: $61K
PITI: $812/month
Cash on cash ROI after allotting for vacancy, maintenance, capex: 11.32%
How did I fund the deal?
My own cash. Some of it was cash I saved, some of it was a loan I took out on my employer 401k.
Where did I find the deal and how did I negotiate?
I found it on the MLS. This property is right at the border of Charles Village and Harwood. It had been on the market for a while. It was originally listed at a little over 150K, I didn't go and look at it until the price came down to 145K. The house was in decent condition. It looked like the kitchen floors had just been redone, original hardwood floors were in good shape, the HVAC and electrical panel were installed within the past few years, all the kitchen appliances were in great shape as well. The biggest thing I first noticed was the back deck and back balcony. I was concerned about some structural issues with it and thought it could potentially get pricey to fix. I estimated overall rehab/get "rent ready" cost to be 10k-15k between some other cosmetic fixes and the deck/balcony. Rental comps in the neighborhood were 1500-1700. I offered 130k. This was a partial FSBO. The seller used an agent to list the property only so he dealt with my agent directly in terms of the negotiations. After going back and forth a bit, the seller agreed to 136K "as is" with inspections, no closing assist.
Home inspection
The home inspection only ended up having one surprise that my realtor and I didn't notice. There were three windows on the rear of the property that had windows that were actually smaller than the opening. So the previous owner had put particle board in the frames, then mounted the windows in there. So there was just particle board exposed directly to the outside. These were three very large windows that needed to have the entire frame replaced and the brick around them also needed to be repointed. My realtor and I didn't notice these windows at first because the only way to access them from the outside was a very narrow almost hidden side alley. On the inside, the windows were a bit higher up than normal. I'm short and I couldn't see out the windows easily. My home inspector was taller and noticed the windows right away. I was a bit worried about these windows when I found out about them as I didn't consider them in my budget. After talking to my contractor, I ended up getting an estimate for far less than what I imagined it would have been.
Renovation
I got three estimates for all the work I wanted to get done. I ended up using a carpenter for the deck/balcony. He was able to reinforce everything and replace the railings for far less than what I thought it was going to cost. It ended up being 2K.
I used a contractor that's a family member of one of my coworkers for the rest of the work. I had him write out the scope of work and separate out all the tasks and price out the labor and materials separately for each task so I could easily add or remove things if I needed to adjust the SOW to better fit my budget. The main things he did was replace the tile in the bathroom with LVT, replace the bathroom vanity, replace both bathroom's toilets, replace all the closet doors, repaint the entire interior, power wash and stain the deck and balcony, replaced the three rear windows and frames and repointed the brick, added a handrail for the basement stairs, fixed any chipped paint on the exterior, replaced three front window frames, and some other things but those are the main items.
I used a roofing company to put another coating on the flat roof for 1.5k. There weren't any leaks, but the seller didn't have any information about the roof and when it was last done. I didn't want to have to deal with any leaks when I got tenants in so I had another coating put on. I had a plumber replace the hot water heater for 1.4K. It was still working but it was over 15 years old and was starting to rust in some spots.
Baltimore city rental inspection
I passed the rental inspection on the first visit. I passed the visual inspection for lead as well, so he proceeded to do the dust samples. The basement was unfinished and the concrete still had a lot of dust on it despite my efforts to clean it up. The basement failed the dust sample, all other rooms passed. The inspector said that usually these unfinished basements fail unless you power wash and paint them with a garage type epoxy paint. I already had tenants lined up to move in at this point, so instead of trying to clean it better and try again I just went with the power wash and painting option. My contractor did it for $1.5k. The basement passed the lead inspection on the second dust sampling. After that, I submitted all my information to the city website and got my rental permit.
Listing the house/tenant placement
I listed the house at the high end of the rental comps at $1700. I was able to secure a tenant in the first 3 days of listing it. The first people I showed it to applied within an hour of leaving and they met my tenant screening criteria. I learned from this that tenant screening takes longer than I thought. I went through and called their previous landlords, called their employers to verify their income and employment, etc. I imagine this will be a lengthy process if there are multiple applicants.
Lessons learned
On my second deal, I asked for 3% closing assist from the seller instead of negotiating the purchase price. I like this approach better than what I did here on my first deal. Closing costs in Baltimore city are incredibly expensive, so getting a few thousand from the seller for that is better than saving a few thousand on the purchase price. That's a couple thousand dollars less I have to bring to closing for a negligible different in the mortgage payment.
My timeline here for completing the rehab and getting it inspected and my permit approved with the city was really tight because I had committed to allowing the tenants to move in on a specific date. I should have built in a little more room for delays. Thankfully, my contractor was able to squeeze in the additional work on the basement I needed to pass the lead inspection, but this could have ended up not working.
Overall, I'm happy with this deal. I went a little over budget and it's not necessarily a "home run" but I'm happy with the cash flow and I learned a lot during the whole process.
I'm currently in the middle of my second deal, which I think may end up having a better Coc ROI, but we'll see. Thanks for reading about my deal! I hope it was helpful to anyone that is just starting out.