Bought my 1st Rental Property!

35 Replies

Investment Info:

Single-family residence buy & hold investment in Raleigh.

Purchase price: $194,000
Cash invested: $27,500

I bought this property as a buy and hold investment. What I like about it is that it's a ranch style home with 3 beds/2 full baths and has a large, private, fenced in yard. I anticipate in the next 5 years for it to appreciate about $40k-$50k. I listed it for $1,450/mo. and got multiple applications within the 1st week on the market and b/c of the great updates to the kitchen, bathrooms and awesome outdoor yard space I ended up getting $1,500/mo. I am using a PM to market and manage the property

What made you interested in investing in this type of deal?

I was looking for a 3/2 under $200k in the Raleigh, NC market when this one, which was outdated, was sitting on the market for a while.

How did you find this deal and how did you negotiate it?

It was on the MLS for about 30 days before I put in my offer. Because I'm a Realtor, I repped myself.

How did you finance this deal?

Conventional Financing.

How did you add value to the deal?

Full interior paint; Added new hardware, light fixtures and fans throughout the home; New granite counters in the kitchen and bathroom vanities; New appliances, tile backsplash in kitchen; Full renovation of both bathrooms including tubs, vanities, hardware, tile surrounding the shower wall and custom, moroccan tile on the floor in the owner suite; New gutters.

What was the outcome?

My goal was to complete the project and begin marketing it within 4 weeks which I was able to do. It was on the market for an additional week before accepting a tenant who moved in the last week of October. I'm getting $1,500/mo. in rent. Mortgage is $916 and PM is $150 (10%) and so I cashflow about $434/mo.

Lessons learned? Challenges?

You gotta stay on top of contractors and communication is so important.... Having the work itemized per contractor was definitely beneficial to all parties involved. Probably the biggest challenge was timing- Since this was my first rental property, making the design selections took up the most time- Especially the appliances! Because of everything with COVID and things being out of stock, it was difficult trying to coordinate everything.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I repped myself as buyer's agent. Dan Stanton, of The Mortgage Firm was my lender. Jon Anderson, of City of Oaks Law, was the closing attorney. Shaun Adams, of SJ Adams Insurance, insured the home. All 3 of these professionals I have been recommending for over 8 years. Will Spence, of Acorn + Oak is my PM and is phenomenal! Contractors used: Paint/Handyman- Tony Silva; Tile: Luis Laba (LABA Tile) and Juan Romero did granite install.

@Matt Polinchak Help me understand your numbers a little better. I assume your taxes and insurance are escrowed so I can't see how you got to a mortgage payment of $916 when considering your purchase price and amount invested. Raleigh is a great market to be in so you'll do well with this one.

@Matt Polinchak

Thank you for sharing. As a newbie I’m interested in learning how others work their first deal as well.

Like I said I’m new, so my questions may seem wonky.

However, with that said, you noted roughly $27,000 for cash invested..

What was your down payment portion?

Was it considered an investment property, how did you get financing without needing more than 20% down?

What was your renovation budget?

Did you put all the cash in or did you have a partner in the deal?

Congrats as well! I’m hoping to get into the game shortly myself. Best!

Congrats Matt but I am trying to understand your numbers a bit better. What did you calculate as a 1st year COC return? Did you include 5-10% maint, 5-10% capex, 5% Vacancy, 10% PM, $1.2k property tax, $1k insurance? With 10% down on a 30 yr note, I would guess about 3-4% COC return?

I purchased my first out of state property one year ago and have subsequently added 5 more. Generally speaking, I won't even consider a property unless I am hitting at least a 1% or higher Price/Rent ratio.

Originally posted by @David Spear :

Congrats Matt but I am trying to understand your numbers a bit better. What did you calculate as a 1st year COC return? Did you include 5-10% maint, 5-10% capex, 5% Vacancy, 10% PM, $1.2k property tax, $1k insurance? With 10% down on a 30 yr note, I would guess about 3-4% COC return?

I purchased my first out of state property one year ago and have subsequently added 5 more. Generally speaking, I won't even consider a property unless I am hitting at least a 1% or higher Price/Rent ratio.

David's point is rent - PITI - PM does not equal cash flow. It is missing numerous other expenses. When you add vacancy, cap ex, maintenance, miscellaneous the cash flow will be significantly less.

My view on your transaction is that most areas are priced correctly for the anticipated risk and return. The fact that your rent is not 1% of value likely reflects a better chance of appreciation (or lower risk) than David's 1% properties.

I do question if you could have gotten a similar rent to value ratio in your local market.   In my high value market, I can obtain that ratio with patience.

Also it was sweet that you were able to obtain such a high LTV loan not owner occupied. I typically cannot get higher than 80% LTV without suffering a huge rate hit. Was it seller financed? The high LTV will magnify any return.

Congrats on your first purchase. I suggest you research the 50% rule and the expenses that comprise the 50% rule. This is only so that you have a realistic short-term cash flow projection. The property is likely to appreciate and if that happens the rents will also appreciate. With the high LTV, any appreciation in excess of inflation will result in a good return.

Good luck

@Matt Polinchak - You don’t cash-flow $434.00 because you still need to deduct property taxes, insurance, water/sewer(?),, maintain/repair, Reserve account, and any other recurring expenses you have. THEN you will know your true cash-flow.

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