First Rental Property - In business! Ups, Downs, Tips etc.

7 Replies

Hi everyone - as they say, slow and steady wins the race and that's the name of the game: SLOW. Part of that is because I'm an impatient person and part of that is because the whole process was relatively slow due to outside factors and people.

Intro: I am a real estate attorney in Los Angeles and have experience in affordable housing development, residential real estate purchase and sale matters, commercial and residential landlord tenant matters etc. I've done this for about 6 years, so I came into this process with a working knowledge. I also had my real estate license for several years but only did a bit of work in that area. Last year I started getting serious on BP, reading more and talking to people, then in March or so, I make the decision to buy. I wanted a market where prices were pretty low, taxes were moderate to low, laws were friendly enough to landlords, etc. I was deciding between Cleveland, Indianapolis, St. Louis, Kansas City, and Memphis. All of these cities made sense in some ways, but at a certain point, I had to get over my analysis paralysis and decided on Cleveland.

Home hunt: I talked to a few realtors in Cleveland and was impressed with Mike Azzam and his agency. He had me work with a realtor in his group named Wayne. I had a very good experience overall with him as well. Being new to this market, it took me some time for us to get in sync with my needs and what was actually available in this area. I appreciated the honesty including zip codes to avoid, the need to increase my budget a bit, etc. We started working together in May 2020 and made about 8-10 offers on properties until this single family home on the east side of Cleveland (zip code 44128) was accepted. The difference in selling agents in Cleveland vs. Los Angeles is noticeable, specifically with the fact that half didn't even respond to questions or offers. In LA, they respond in minutes sometimes.

The house: 3 bedroom, 1 bath, just over 1,000 sq. ft. with tenants in place on a month to month lease. They had been there about 2 years and are staying in the property. I did not use the property manager recommended by my realtor (didn't like the guy or his attitude). Found a few recommendations on BP and signed up with one. The process was pretty simple and so far the PM has been responsive enough and competent. She went out last week to the property and dropped off a welcome package along with an Amazon gift card I bought for the tenants (to try to start out with a good relationship).

The numbers
: 13+% cap rate, property taxes $745 per year, tenant pays all utilities, net cash flow $339 per month.

Mortgage: Chemical Bank, friendly but SLOW. I provided everything requested within 24 hours of each request. Underwriting was backed up and took way too long to approve my loan and closing - added about 2 weeks unnecessarily. Not the best rate since it is a small loan, but works for now. Rate is 4.3% with 1 point in costs.

Insurance: I was recommended to call a local agent via BP. Ivra Bassett with Shelter Insurance. I also got quotes from some of the big national names. 100% recommend going with a local person. He made the process simple, got me the rates I needed, visited the property, and also has connections to local people for other services if I need them.

What did I learn?: 1) Be patient. Nothing moves as quickly as you like, especially with a mortgage. But have faith it will get one. 2) Closing costs were a bit higher than expected. I had a budget cushion, so it was fine. But make sure you make room for unexpected costs. 3) I didn't shop around for some mortgage costs that are allowed to be shopped, and you should. I just didn't have time or energy on this smaller deal. 4) Build a good team and respect them. I bought a gift card for both my tenant and my realtor, because I want a great working relationship with them going forward.

If anyone has questions, advice, or comments, I welcome them! I am new to the game so I'd love to hear from experienced people and I'd also love to hear from new people who are thinking about jumping in. Sharing knowledge is what BP is all about. Thanks for reading.

Hi Kellan. I recently bought a place in Cleveland and used Cross Country Mortgage and they were great, just a tip if you are looking to get another property in the Cleveland area.

congratulations. Looks like you did your research and you overcame your hardest objection - analysis by paralysis. Great work! What is your next step?

Smart move on the welcome package, people often overlook it / try to save every $50 increment they can. To me, it's an investment, think of your tenant as your client and when times get tough give them the emotional incentive to want to keep paying rent/be extra communicative and transparent. Great cash flow for house number 1!

@Mike Furda thanks! Do you know cross country’s loan minimum? My mortgage is small so most banks wouldn’t take it. 

@Alex Olson thanks, I appreciate it. Next step is to watch this property for the rest of the year and monitor the economy etc. Hopefully both those things are OK over the next 3-5 months. If so, I plan to buy a second SFR in spring 2021. I may also consider a duplex.

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