Reviewing Performance of My First RE Deal (Turnkey Rental)

[Gloria Sheridan]

I pretty regularly circle back and review my figures for prior deals to see if there are any tweaks I can make to improve the accuracy of my forecasted investment performance.

I went back to the figures I’d prepared to calculate investment performance on this fully recently renovated duplex in Marietta, GA. The property is walking distance to a great elementary school in a good school district. I'd had my eye on the place for years, saw the For Sale sign go up, and called on it immediately. Purchased Dec 2017; $258,000 purchase price. 25% down. Seller financed at a great rate (4.85%).

I’ve learned a few things and also have now included adjustments to account for:

1. The cost of separating the water meter.
2. The affect of moving that monthly water bill off my expenses ($100/month saved) and onto the residents.
3. More accurate closing costs (my original addition of the fees was low somehow—the estimate I use generally to swag a closing cost is $4,000 for the kinds of properties I buy).
4. Adjustment to show market-average rents for the quality/size of the units (mine are $1050 now, but will adjust to $1200 in Jan 2019).
5. More reasonable assumption for Vacancy allowance. I have been using 8% which is too high. I’m using 4% now. Basically: 1 month’s rent lost due to vacancy at $1200/month rent divided by annual expected revenue of $28,800 = just over 4%.

So, results are attached but show overall pretty decent performance:

Monthly Cash Flow: $728.42

Cash on Cash ROI: 12.43%

I'm “reporting out to you all” on this to keep myself accountable to see how things are progressing, as well as share what I’m learning as time is going by.

The reality is: If I’d "known what I was doing" back in Nov 2017, I probably would have never thought about buying this place (Too pricey! Not a value-add!) Even when the appraisal came back low (this is the only renovated duplex in this neighborhood; all the rest are quite shabby; so comps sucked), we pressed on and bought the place using seller financing. But the result has been great—Almost effortless significant cash flow. I think there are numerous lessons here:

1. Just jump in. Get started. Let yourself break the ice somewhere, even if the deal might not seem “perfect.” Go ahead and start taking in $300/month in net cash flow (a small win) while you are pondering how to generate $1000/month cash flow (a bigger win).
2. Just because a place isn’t super-cheap to begin with, doesn’t mean you won’t make money on it. Sometimes it’s okay to buy a new-ish car that you can drive on Day 1, rather than a fixer-upper you have to overhaul. I need to stop fixating on super-low-end properties that need a lot of work and focus instead on the general overall potential cash flow opportunity (for my subsequent deals).
3. There is no rule that says making money has to take a ton of work. I have the income and the credit—Maybe I should just buy more turnkey properties since I am able to?

Well, wanted to share my latest thinking and some learning/retrospective on my first deal. I've tried to attach my actual Bigger Pockets PDF, but I can only seem to add images, so I've snipped key sections of the actual details of the analysis, done using the Bigger Pockets Rental Property calculator.

Thanks for reading! Feedback requested and encouraged...

[Peter Ledger]

Originally posted by @Jay Hinrichs:

Originally posted by @Anish Tolia:

Originally posted by @Jay Hinrichs:

Originally posted by @Anish Tolia:

So lets get this straight. You paid $60K over appraised value so you are down $60K to start with (not whit standing the seller financing) You get about $700/month (is that real, did you include capex reserves, vacancy etc?) so it will take you the first 7 years before you are actually back to even. If you sell next year you lose over $60K (selling costs). I am struggling to see why this makes any sense at all!

Anish I think her point was that the comps were properties in massive need of repair.. and that her property was perfect.

Just like when we buy in the mid west.. and the appraiser pick up a vacant as is house that sells through a wholesaler for 20k but the turn key out fit is selling the same house on the same street for 75k... one is rehabbed one is not.

I think that was what she was saying... although in ATL 250k for a duplex depending on the area can be high or just about right.

That may be true. But the fact is that if she needs to sell, she cannot because it would not appraise for the next seller as well. I have bought the Midwest homes you speak of and values can vary by 50% depending on condition. But even the fully rehabbed turnkey ones I bought have appraised at the buying price. If they had not I would have negotiated the price down or walked.

fully understand not trying to validate her position on why she paid what she paid.. but it does look like the numbers work. and you know buy and hold investors they are never going to sell so selling usually does not enter into their mind when they buy.. for me I am looking to sell before I even close the buy LOL..

@Jay Hinrichs, exactly... I'm in Cleveland and I do both. I also help out of state investors pick up turnkey properties. Most of these SFRs that are being picked up for $50k will be worth $50k still 10 years from now. But that's not what they're purchased for. They're purchased because for $50k you're getting $1,000 a month in rent, and that is phenomenal.