Our first deal 10 months later, Duplex Little Rock Arkansas
My wife and I bought our first rental Property in June 2016.
Basics of the deal:
Duplex in Little Rock AR
Purchased on MLS
Purchase price $105,000 (was listed at $140,000)
Cash to close: $23,579 ($21,000 down payment, $2,579 closing costs)
Rehab cost: $10,000
Loan: $84,000 at 5% annual interest (Commercial, 30 fully amortized, 5 year term then balloon)
Rent: $1500 (750$ per side) per month, 18,000 per year
Debt service: $568 Per month
Projected expenses: $719 per month
Debt service+expenses: $1,287 per month, $15,453 per year
Projected Profit at time of closing: $212 per month, $2,547 per year
Here is the spread sheet I used to calculate the profit:
* One note: We realized just before closing that it was customary for the renters themselves to cover utilities. This was a big win and erased a projected $160 per month ($1,920 per year) of expenses. That is reflected on the Pro Forma below.
| 2314-2316 Blackwood Rd Little Rock, AR 72207 | Great area North of UAMS | |||||
| Percentage | Percentage | |||||
| Sales price | $105,000.00 | asking price 140,000 | ||||
| Down payment | $21,000.00 | 20% | 0.2 | |||
| Loan | $84,000.00 | |||||
| Interest rate | 5% | |||||
| Term | 20 | |||||
| Closing costs | $2,579.85 | %2.457 | 0.02457 | |||
| Rehab costs | 10,000 | |||||
| RENTS | ||||||
| monthly | annually | Unit amount | annually | total monthly rent income | ||
| Units 2 beds | $750.00 | $9,000.00 | 2 | $18,000.00 | $1,500.00 | low end of estimated rent from local property manager |
| $0.00 | $0.00 | $0.00 | ||||
| Effective gross income | $750.00 | 2 | $18,000.00 | $1,500.00 | ||
| EXPENSES | ||||||
| monthly | anually | percentage | percentage | |||
| Taxes | $122.50 | $1,470.00 | 1.40% | 0.014 | derived from tax records, seems high but trying to use a conservative estimate. | |
| Property Ins | $77.26 | $927.12 | $38.63 | per door | Quote from Mcghee insurance | |
| Maintanance | $120.00 | $1,440.00 | 8% | 0.08 | ||
| Property Management | $150.00 | $1,800.00 | 10% | 0.1 | ||
| HOA | $0.00 | $0.00 | ||||
| Utilities garbage, water | $0.00 | $0.00 | $0.00 | per door | ||
| Mortgage payment | $557.74 | $6,692.88 | using 5.3% amortorized over 20 years. | |||
| Vacancy | $120.00 | $1,440.00 | 8% | 0.08 | ||
| TOTAL EXPENSES | $1,147.50 | $13,770.00 | ||||
| Costs up front | $33,579.85 | |||||
| Expenses | $13,770.00 | |||||
| Rents | $18,000.00 | |||||
| Cash Flow anually | $4,230.00 | 12.60 | % Cash on cash return |
So know we are 10 months out from this initial purchase and we have learned a ton.
The good:
-Property is fully rented at our projected rent and monthly expenses are in line with projections except:
--Property taxes are a bit higher because in Arkansas the county does an independent assessment and does not use purchase price. At the time of purchase the county had our property assessed at $175,000 with one phone call I got that lowered to $125,000. Likely I could challenge and get it lowered even more this august.
--We fired our manager and are self managing and relying on Friends and handymen in the area. This has lowered our expenses but is a pain the rear at times.
The Bad:
-We initially hired a property manager. Very nice guy....but did an awful job managing our property. The duplex sat vacant from July until December 2016. Finally we had a friend visit the property and he told us it was dirty and not in showing condition. After this we fired the manager and have gotten it fully rented in about 3 months.
-Property has some drainage and plumbing issues. We have spent about $10,000 putting a French drain and Sump Pump as well as repairing a leak. We will probably spend another $5,000 at least in revamping the plumbing.
What have we learned:
- GO out and see the area. We have yet to go out to Little Rock to see our property. No good excuse. This could have prevented lots of issues and streamlined the process for getting this property rented.
-Fire bad managers or venders as soon as you are not getting results. You should have an realistic expectation of performance (for instance you might expect that the manager will have the property rented in 1-3 months) and move on from the relationship if that expectation is not met. Luckily we paid our manager nothing but we still had to eat all the mortgage payments and maintenance without any rental income for 6 months.
-Houses are expensive....This is obvious. But Maintenance and capital expenses are the two things that will kill your profits quickly.
Overall very happy to have taken the dive into Real Estate investing. Excited to make another purchase this year. Will likely purchase again in the Little Rock area. Would like to buy at least 10+ units this time.
Feel free to reach out with any questions or comments :-)
