First Investment Property SOLD!!!

[Eric S.]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $265,000
Cash invested: $25,000
Sale price: $379,000

This was my first RE purchase with an FHA owner occupant loan in 2013. It was a 1200SF 3/1 that I converted to a rental 4 years after I bought it. I renovated the entire home myself with a little knowledge and LOTS of patience. It turned out to be a lucrative first property, as it appreciated substantially (while my tenants paid the mortgage). After refinancing in 2015, the house cash flowed comfortably with a gross revenue of $29,000. Sold in 2020 to take advantage of the capital gains exclusion window for a net profit of $130,000.

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

I kind of stumbled into the situation because of a job move, with some limited knowledge of "what it takes to be a landlord". However, I knew as a small 3 bedroom home with a garage and backyard, it was a great rental in a market where new 2 bed apartments were easily $2700+ a month. I thought this was a nice alternative and would rent quickly.

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

I had looked for almost a year at everything in my price range (MLS), and the day this came on the market I immediately went to see it. It was an estate sale with the executor being the sister who just wanted it gone. The previous owner had done a lot of expensive upgrades that I noticed right away (new roof, siding, water heater, furnace, washer and dryer, windows), but the cosmetics were dated. It was a good deal and I offered full asking that day.

How did you finance this deal?

FHA conventional with 7% down. Refinanced 3 years later to kill PMI.

How did you add value to the deal?

Top to bottom cosmetic renovation on the inside, including removing a wall between dining/kitchen, refacing and re-arranging existing oak cabinets, new farm sink and custom base cabinet, new tile backsplash, custom island, quartz counters, and extending new hardwood floors into kitchen. For upstairs bath, I did new bathroom tile surround, new marble herringbone floor, new toilet/vanity, and added a small half bath on the first floor making it a 3/1.5. Lots of new hardware/lighting and paint throughout.

What was the outcome?

After finding a really great tenant, they stayed for 3 years and always paid on time. They were incredible and always told me about any maintance issues and kept the house in great shape. To take advantage of the 2 out of 5 cap gains exclusion, I decided to sell it. I lucked out honestly with it being in the summer of 2020 and the NYC COVID buyer frenzy was in full force.

Lessons learned? Challenges?

At first I knew very little about capex, maintance, vacancy expenses and why those matter when evaluating long-term cash flow (thanks BP!). I got very lucky in the 3 years I rented it however, and had hardly any major expenses (because most of the house was mechanically new-ish). Had I been more "woke" I would have been more conservative with how much money I was keeping for myself. Also the lower cap rate of the area was a blessing in that I had amazing tenants with stable good paying jobs.