Closed on my First Deal!!

Real Estate Deal Analysis & Advice
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Closed on my First Deal!!

Mike Mead
Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes

So I finally competed my first deal!

Since finding BP 3 years ago, I knew I would start a business in Real Estate at some point. At the time I didn’t have any money saved up and all I had was time. So I put a plan together to save up enough for a down payment. In the meantime, I did nothing but read books, listen to audiobooks, and listen to Podcasts.

I feel a big part of my success was because of BP so it’s only right that I share the details of my first deal. I had been looking at several properties in the NC area and found a Duplex for sale. It was 3 beds 2 baths on both sides and built in 2008. It was listed for sale at $169,000 and had renters in place bringing in $1500.00 per month. Home appraised for (179K)

$750 per side was about the average rent for this part of NC. I had analyzed countless properties in the area so I felt comfortable with that amount being collected. After some further research, I found out that it was an estate sale. I then looked at the public record to see if they had refinanced the property at all and didn’t find anything. I determined that they owed about 85K on the property.

From this point, I thought  a good opening bid would be $125K. They declined, and after brief negotiations we settled on $132K.

(Disclaimer) I know I may have made some mistakes but I’m willing to work through them.

Rent Collected $1500

Mortgage -$675

Property Management -$150

Vacancy -$75

Repairs -$75

Liability Insurance -$27

HVAC -$25

Roof -$35

Cash Flow $438 per month

20% Down Payment $26,400

30 year terms

Cash Flow Yield 19% (438 x 12 = 5,256/26,400)

ROI 22%

Note: When they countered to 145K, I got some great advise from @Michael Lee to tell then why I was offering a lower price and give my reasoning... IT WORKED!!  Thank you Michael for your help. 

I'm officially off the sidelines!

If anyone would have handled this differently, I would love to know.

Thanks

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Ted Vu
Garden Grove, CA · Member since 2016 · 3 posts · 2 votes
10y

nice job and thank you for sharing your first deal. I'm in the same boat as you 3 years ago. I'm now thinking about investing in about 2-3 years. While I save up my funds I'll be spending a lot of time here, listening to podcasts and reading books. I hope you have many more successful deals in the near future.

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  • Alexander Price
    Investor · Gilroy, CA · Member since 2016 · 255 posts · 195 votes
    10y

    Cingrats! 

    On your reply to their counter, what did you explain to them to keep your offer price on the table?

    0Reply
  • Christine Johnson-Sundby
    Rental Property Investor · Vancouver, WA · Member since 2014 · 73 posts · 15 votes
    10y
    Congratulations! It's great to hear that you had a first goal, saved enough for your down payment and found a great deal! I look forward to hearing about deal number two!
    0Reply
  • Ross Greene
    Real Estate Agent · Las Vegas, NV · Member since 2015 · 97 posts · 28 votes
    10y

    I have the same question as @Alexander Price

    0Reply
  • Gregg Pauly
    Investor · Foster City, CA · Member since 2015 · 48 posts · 26 votes
    10y

    @Mike Mead  Congratulations Mike!  Your story is great and inspirational.  Thank you for sharing and best of luck as you gain momentum!

    0Reply
  • Mike Mead
    OP
    Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes
    10y
    Originally posted by @Matthew Bridge:

    Congrats

    Thank you

    0Reply
  • Mike Mead
    OP
    Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes
    10y
    Originally posted by @Gregg Pauly:

    @Mike Mead  Congratulations Mike!  Your story is great and inspirational.  Thank you for sharing and best of luck as you gain momentum!

    Thank you Gregg!!

    0Reply
  • Mike Mead
    OP
    Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes
    10y
    Originally posted by @Christine Johnson-Sundby:

    Congratulations! It's great to hear that you had a first goal, saved enough for your down payment and found a great deal! I look forward to hearing about deal number two!

    Thank you so much Chris!

    0Reply
  • Jennifer S.
    Property Manager · Orange County, CA · Member since 2013 · 57 posts · 6 votes
    10y
    Great story!!! Congratulations to you!
    0Reply
  • Mike Mead
    OP
    Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes
    10y
    Originally posted by @Alexander Price:

    Cingrats! 

    On your reply to their counter, what did you explain to them to keep your offer price on the table?

    With my counter, I explained to them again that I was an investor and trying to find a win-win scenario for both of us. I further explained that I ONLY purchased properties at a discount. Along with that, I sent a copy of the insurance quote I received which was an additional 1800/year. Lastly, I sent a small spreadsheet similar to the numbers I presented here. After determining that my best and final price was 132K I let that be known to the seller. My agent also reinforced the message saying that any smart investor would have numbers similar to the ones I presented. 

    Keep in mind also that It was an estate sale, and had been on the market for several months.

    1Reply
  • Mike Mead
    OP
    Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes
    10y
    Originally posted by @Ross Greene:

    I have the same question as @Alexander Price

     Hi Ross, I hope I answered your question when I responded to Alexander.

    0Reply
  • Mike Mead
    OP
    Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes
    10y
    Originally posted by @Jennifer S.:

    Great story!!! Congratulations to you!

    Thank you!!

    0Reply
  • Brandon Griffin
    Real Estate Professional · California, MD · Member since 2016 · 35 posts · 8 votes
    10y

    Congrats!  And great job negotiating!

    0Reply
  • Albert G.
    Yonkers, NY · Member since 2015 · 19 posts · 5 votes
    10y
    Originally posted by @Mike Mead:
    Originally posted by @Theodore Freeman:

    Grats!!

    If you don't mind...Did the provided justification to lower include something in the numbers or was it something unconsidered in the property itself?

    Hi Theodore, Good Question. I told them from the start I was an investor and that the numbers had to fit my strict criteria (15-20% below market value, 20% down, and cash flow of 200/per door). I then discovered that the property required Wind and Hail insurance because it was so close to the Coastline. That ate directly into my cash flow which required me to lower how much I could offer. The Hot Water tanks (While still functioning) were at least 8 years old and I anticipated a replacement on those right away. So I actually worked the numbers backwards until I arrived at $200/door. I felt that if I bought it right, the market would tell me what I could offer. I hope this helps.

    Hi,
    Did you actually tell them that you are looking to purchase a property 15-20% below market value?  
    Sellers are always striving to sell their property at market value. Would telling them you only buy below market value, work against you?

    0Reply
  • Account Closed
    Real Estate Agent · Richardson, TX · Member since 2014 · 511 posts · 161 votes
    10y

    @Mike Mead Congrats! a very solid 27 % equity. Are you doing a cash-out refi and jumping into your next deal? Great work, best of luck in your future deals. 

    0Reply
  • Mike Mead
    OP
    Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes
    10y
    Originally posted by @Albert G.:
    Originally posted by @Mike Mead:
    Originally posted by @Theodore Freeman:

    Grats!!

    If you don't mind...Did the provided justification to lower include something in the numbers or was it something unconsidered in the property itself?

    Hi Theodore, Good Question. I told them from the start I was an investor and that the numbers had to fit my strict criteria (15-20% below market value, 20% down, and cash flow of 200/per door). I then discovered that the property required Wind and Hail insurance because it was so close to the Coastline. That ate directly into my cash flow which required me to lower how much I could offer. The Hot Water tanks (While still functioning) were at least 8 years old and I anticipated a replacement on those right away. So I actually worked the numbers backwards until I arrived at $200/door. I felt that if I bought it right, the market would tell me what I could offer. I hope this helps.

    Hi,
    Did you actually tell them that you are looking to purchase a property 15-20% below market value?  
    Sellers are always striving to sell their property at market value. Would telling them you only buy below market value, work against you?

    Actually, I told them I only purchased properties at a discount from the market value. I didn't give them the exact disoucnt I like to purchase properties. However I had my max number I would buy for and I assume they had their minimum price they would sell for. I guess it depends on how you look at it. I felt like by telling them I was an investor set expectations that I would be looking for a discount. In this case, I don't feel like it worked against me but more so helped. They knew that it was only about the numbers for me.

    0Reply
  • Mike Mead
    OP
    Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes
    10y
    Originally posted by @Account Closed:

    @Mike Mead Congrats! a very solid 27 % equity. Are you doing a cash-out refi and jumping into your next deal? Great work, best of luck in your future deals. 

    Thanks Daniel, My current plans are to make similar purchases like this every year for the next 5 years. From there I plan to re-purpose my equity as a down-payment on a larger apartment building. Saving consistently each month for this property was a great lesson in investor discipline.

    0Reply
  • Julia Vang Hart
    Realtor · Memphis, TN · Member since 2015 · 54 posts · 20 votes
    10y

    @Mike Mead: Thank you for sharing your success story! Congratulations! Looks like you made a great deal. Every success story inspires me to want to do the same.   

    0Reply
  • Mark Chen
    Los Angeles, CA · Member since 2016 · 13 posts · 1 vote
    10y

    @Mike Mead... Can you explain to me why your property being an estate sale effects your ability to negotiate the final sale price?

    Thanks!

    0Reply
  • Mark Chen
    Los Angeles, CA · Member since 2016 · 13 posts · 1 vote
    10y
    Originally posted by @Account Closed:

    @Mike Mead Congrats! a very solid 27 % equity. Are you doing a cash-out refi and jumping into your next deal? Great work, best of luck in your future deals. 

     Account Closed how did you come up with the 27% equity?  I'm new so just trying to figure out the math.  I get that 20% of it comes from the down payment but where does the other 7% come from?

    Also, how do cash out refi's work?  

    thanks!

    0Reply
  • Account Closed
    Real Estate Professional · Swarthmore, PA · Member since 2016 · 8 posts · 1 vote
    10y

    Congrats! on taking the first step.

    0Reply
  • Mike Mead
    OP
    Rocky Mount, NC · Member since 2014 · 30 posts · 17 votes
    10y
    Originally posted by @Mark Chen:

    @Mike Mead... Can you explain to me why your property being an estate sale effects your ability to negotiate the final sale price?

    Thanks!

     Hi Mark,

    So what I gathered was that they were trying to liquidate the property as fast as possible due to some unforeseen circumstances..ex death, divorce, etc... I knew if they had a mortgage on it they had to limit what they could take but none the less they were motivated sellers. 

    0Reply
  • Account Closed
    Rental Property Investor · Vancouver, WA · Member since 2014 · 308 posts · 144 votes
    10y

    Awesome!  I know taking the first step can be the scariest, but if you keep at it, overcome obstacles, and keep your eye on the math, you'll do great!

    Congratulations!  :)

    0Reply
  • Account Closed
    Real Estate Agent · Richardson, TX · Member since 2014 · 511 posts · 161 votes
    10y

    @Mark Chen Purchase price divided by Appraisal value. An appraiser is a person who gives the opinion about the value of a home based on comparables (homes recently sold). Banks normally send an appraiser every time they will finance a transaction to prevent them from lending too much money in a house that it's not worth it. They essentially protect themselves by making sure there is enough equity in the property. 

    Cash-out refinance means you take money out of a property by refinancing it. In this example, I was asking Mike if he was planning on refinancing it so he could re-invest the cash in another property. Since the banks lend up to 80 % of a property value, in this case, the appraisal value (169,900)times 80 percent is 135,920.  He can go to another bank and wait 6 months to do a cash out refinance (I believe 6 months it's the wait period but don't quote me on that). He would essentially be getting his money back since he built equity by buying at a discount. 

    0Reply
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