Closed on my first property! 3-Plex on FHA 3.5% Down

7 Replies

Hello All!

I'm exited to share my experience on buying my first property!
I had actually lost the house on the bidding process AFTER I had signed the contract myself. Luckily for me the other guy's financing didn't come through and it came back on the market for a total of 2 days, on that time the house had 5 showings. There is currently zero inventory for multifam in the Chicago NW Suburbs.
House was listed for $410k, we settled for $397k - $5k for my closing costs.
The property is in top shape other than wood sidings needing paint & 2 aged but working HVACs. Great living property, good neighborhood/schools, 1 min walk distance to train. Built in 1986, 3500 sqft + 700 sqft basement, just under .25 acre lot. 
There's a 3 Bed 2 Bath "Owner's unit", pretty much a full house with basement, high ceiling, den living, dining, open kitchen. On the left side there's an adjacent dupex 2 Bed 1 Bath ea. One great thing about the property is the LT tenants. 16 years on the 3BR, 11 years on the 2BR. I would be living on the first floor of the duplex.

Rents are at $1,500 for the 3BR; $980 for the 2BR, tenants pay all utilities but trash ($680 yr). $8300 property tax.

My big concern is cashflow, or the lack thereof. PMI, Interest, Principal, Tax, Insurance & Trash comes down to about $3080. So that's a full $600 short that would be "my rent" which is not too bad. However all maintenance, repairs, vacancy, cap ex., landscaping/snow, would also come out my pocket.

If I were to rent out my unit for $1000 and get a property manager this would for sure be negative. I am very happy with it, mainly because it'll be a soft intro into being a landlord, however I do feel I would need to do much better on future acquisitions to actually make a profit or I'll be stuck. What do you all think?

Thanks!
Jerry

Doesn't seem like a half bad place for a taste of being landlord. As you said the numbers aren't exactly great, but at least you made a step forward.  Are the rents all at market?

Medium rhplogo jpgDan Mackin, Red Hawk Properties | [email protected] | 720‑971‑7139 | http://www.redhawkteam.com/ | CO Agent # FA.100056958

Hey Jerry,

Congrats on buying this place! Often time the first purchase is the hardest.  You had a lot more foresight that I did when I started out... My first purchase was a condo that I thought I'd live in forever.... Ended up selling it for less than I bought it for 7 years later...

I'd suggest taking a look at a few things to see what your next steps should be:

1)  Evaluate the market rent of all 3 units. Are the rents under market? Is there a need in the rental market that isn't being met?  (For example: In our location dog friendly housing can be very hard to find. So tenants are willing to pay a premium for a dog friendly home. We do charge an additional $500 refundable pet deposit on top of the regular deposit just in case...)  Can you do anything to increase the rents?

2)  Have you thought about renting out the 3rd unit and managing the property yourself to build experience and work to possibly increase rents?  This way you can keep costs low and create a positive cash flow situation?  Just be sure to check out the property management advice on there for selecting tenants.  And be sure you understand your state laws about renting.

3)  In the future, a firm game plan with your goal for each property is ideal.  Your end target goal may change over time but getting there could take many different avenues.  : ) That is the fun part.  

Keep on keeping on! And congrats on being a real estate investor!

Ashley

Looks like a great triplex! This is what I'm hoping to do for my first purchase as well. It's great having long term tenants already in place. I had a duplex lined up and the LT tenants had been there 7 years but something didn't seem right when I met them. Unfortunately my financing didn't come through either, but would have been a great intro price and a solid start. Congrats on taking action!

Originally posted by @Ashley Wishinski :

Hey Jerry,

Congrats on buying this place! Often time the first purchase is the hardest.  You had a lot more foresight that I did when I started out... My first purchase was a condo that I thought I'd live in forever.... Ended up selling it for less than I bought it for 7 years later...

I'd suggest taking a look at a few things to see what your next steps should be:

1)  Evaluate the market rent of all 3 units. Are the rents under market? Is there a need in the rental market that isn't being met?  (For example: In our location dog friendly housing can be very hard to find. So tenants are willing to pay a premium for a dog friendly home. We do charge an additional $500 refundable pet deposit on top of the regular deposit just in case...)  Can you do anything to increase the rents?

2)  Have you thought about renting out the 3rd unit and managing the property yourself to build experience and work to possibly increase rents?  This way you can keep costs low and create a positive cash flow situation?  Just be sure to check out the property management advice on there for selecting tenants.  And be sure you understand your state laws about renting.

3)  In the future, a firm game plan with your goal for each property is ideal.  Your end target goal may change over time but getting there could take many different avenues.  : ) That is the fun part.  

Keep on keeping on! And congrats on being a real estate investor!

Ashley

 Hey Ashley,
Thanks for the reply & advice! Units are not up to market... there's upside to both, but they have recently renewed leases, I never though about meeting particular needs... this one is literally right next to the parking lot for the train station so that has to account for something. Renting out all 3 units and moving out is my plan, but since its FHA I need to live there for at least 18 months, I'll use that time to save up for the next property.
Thanks! =)
Jerry

Originally posted by @Dan Mackin :

Doesn't seem like a half bad place for a taste of being landlord. As you said the numbers aren't exactly great, but at least you made a step forward.  Are the rents all at market?

 They are not... there's significant upside I think. A single fam home goes for about $2000 - $2200; townhomes for $1800 - $2000; and given that the 3Bed has the basement for themselves and the only direct access to the garage it should be closer to that. Also, there is surprisingly low inventory for rentals in the area as well... Lastly being so close to the train station could bring just a bit more. On the 2BR I think it could be between $70 to $100 higher. Both have just renewed leases though, so it'll have to be next year.

@Gerardo Lozano - Well you've got some time to figure out the numbers then. It's hard with long term tenants since you know they are consistent and sometimes raising the rent too much will make them leave and cost you more in the end. I guess it really comes down to your final conclusion over the next year or so. All I can say for now is learn all that you can with hands on experience. Take the opportunity to become a good dependable landlord who isn't too lenient :-). Keep us posted on how it goes.

Medium rhplogo jpgDan Mackin, Red Hawk Properties | [email protected] | 720‑971‑7139 | http://www.redhawkteam.com/ | CO Agent # FA.100056958

The other upside is that, depending on appreciation and how well you bought, you will reduce your monthly payments because you can drop your PMI. As soon as you have 20% equity from your appraised value, you can save yourself that couple hundred dollars each month in that expense.

Looks great and good luck.

Medium logoBryan O., Note Capital | http://www.notecapital.us