New & Just bought 1st property

9 Replies

Hi everyone!

I am new to this site; from the Houston area. I have been poking around the site for a few weeks now. I have no clue what I am doing but from reading all the post I have found my motivation to jump into the deep end regardless of the outcome. I just closed on my first property today and thought I would share a little. I am not too well versed in the number aspect of things but the price and all things considered it seemed like a no-brainer to me.

I closed today; total out of pocket for the property was $23,675.63

ARV: Who knows, I did not really care to find out. I know what I can get for rent and that's what I'm interested in. Yes, yes, yes … It is good to know because I may change my mind and decide to sale, ect.

I do know it is worth way more than I have invested.

Repair Cost: ? $14,000

New roof, tile floor throughout, AC serviced, ect…

Soooo….. I am walking the property out thinking to myself what I should repair and what I should just paint over. I would like to make the house a nice rental and not just be another slumlord. My wife is helping me and she keeps asking me the whole time if I am crazy. She told me if I make the house nicer than ours she’s moving in the rent house (IT’S A RENT HOME, YOUR NOT SELLING IT!!!!! OK, OK, OK, yes dear I got it). Then a couple walks up to the property and ask us if we are the new owners and if we would be interested in renting the house. I show them around the home and they absolutely love it. I called around and my mom knows the couple. They have been renting a home in the area for the last three (3) years and are looking to move because their rent home is in very poor condition and the owner will not make any necessary repairs (exposed wires, bath has rust holes, ext). I call the couple back and we agreed to $700 a month; same price as their current hellhole.

So to recap:

Total cost after repairs: $37,800 (I hope)

Rent: $8,400 YR

Tax: 2,000 YR

THE PROPERTY:

http://www.tdecurealestatelistings.com/property/112-1ST-ST-HOLIDAY-LAKES-Texas

·MLS: 78865264

·BEDROOMS: 2

·BATHS: 2

·PARTIAL BATHS: 0

·SQ FT: 2092

·LOT SIZE: 0.5016

·TAX: ? $2,000 year (I know I got credit for 4 months @ $612.37)

I HOPE IM OFF TO A GOOD START??????

Not bad. Make sure you call their old landlord and do your due diligence on the new tenants!

Looks like a decent deal to me! Congrats! Good luck! And remember, tenant screening is a HUGH factor in success as a landlord!

@Duane Angell First of all, congratulations!

Couple questions to get a better feel for the property. It looks like it was already removed from the MLS.

Did you have to mortgage the property, or did you pay all cash?

Did you do a complete tenant screening on the couple (i.e credit check, background check, employment check, etc)?

Have you already signed a lease with the couple down the street or did you just agree on a hand shake?

Cash deal, no mortgage.

I did not do a credit or background check (I will from this point forward).

The couple is in their mid to late 50's , both on disability.

I did not have a contract with me, I told them I will drop it by this Thursday.

They have been in their current home for 3 years. I know the landlord; I remember when he told me they were good tenants and he dropped their rent $100 a month just to get them to stay (last year).

Hi @Duane Angell congratulations on your first purchase! Looks like you're off to a good start. Good luck with future indeavors :-)

Hey Duane! Well first of all, congrats on the purchase! Having said that, some of your comments are giving me an anxiety attack lol! Here are some things for you to consider with your next purchase:

- Have your realtor run comps for you of homes in the area before purchasing. You can really get yourself in a pickle buying a fixer without knowing the "ARV" (After Repair Value). In this case, from looking on Realtor.com, 2/2's in decent shape are going anywhere from the high $60K's to the high $70K's, so you did good and should be fine with the amount of rehab you are planning.

- Average rents in your area are $811 according to www.rentometer.com. Always good to check that before committing to a tenant. I think you could do better than $700 probably.

- Two tenants on disability complaining about their last landlord is a big red flag to me. You need to do a background check on them (credit, criminal, and prior evictions) and verify the income. I know they come with pretty good references, and this is Texas, so if they are deadbeats, you can quickly evict them, but going forward, treat the renting of your home as a business and qualify, qualify, qualify everyone that may want to live there. There is a good tenant screening tool in the Resources section of BP.

- You are going to have other expenses besides taxes, which will be based on the new assessed value after the sale, but I think should be roughly around the $2000 you are calculating. Make sure to budget for insurance, repairs and cap ex, and future vacancy. I always put a 10% property management factor in there as well, even if I plan to do it myself, just in case something changes in the future and I can't. Also, if there is any kind of neighborhood HOA fee, you'll need to account for that.

$700 Rent

-166 Taxes

- 65 Insurance (est.)

- 70 Repairs & Capex (10%)

- 70 Property Management (10%)

- 56 Vacancy (8%)

$273 Cash Flow/Month

$273 x 12 / $37,800 = 9% COC Return

After repairs, if you ever decide to refi, make sure the new mortgage payment doesn't exceed your monthly cash flow, or you'll be negative every month. In regards to repairs, it looks like the house can use paint through out, kitchen decent - I'd just paint those cabinets - flooring, and both the baths look like they need new vanity, mirror, floor and general clean up (can't tell what the tub and surround need).

I hope you don't think I'm being too tough on you. Just want to see you succeed, and you can always learn from every purchase so you can keep getting better and better :)

Sharon Tzib, Real Estate Agent in TX (#653488)

@DuaneAngell Congrats on your first purchase of Investment real estate. Also good that you decided to share this with the BP community. The fact that you share your experience, others will want to move forward and follow your path and buy their first deal as well.

@Sharon Tzib

- 65 Insurance (est.), - 70 Repairs & Capex (10%), - 70 Property Management (10%), - 56 Vacancy (8%), $273 x 12 / $37,800 = 9% COC Return...

OMG stop giving away all my money!! J/K

Lots of good advice. I will use these numbers when I buy or refi a property. I will make sure to run comps and do my due diligence on all new tenants.


@everyone

Thanks for all the good advice, kind words and encouragement. I look forward to posting my 2nd deal very soon.

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