We Will Never Sell This Rental Property...SOLD!
A friend of mine recently asked to see a blog post about our first few acquisitions. Starting to provide him with those links (on what I consider my wife and mine's first buy and hold deals and not my false start), I realized I never posted about our very first deal. How rude of me! Thanks for inquiring Josh!
Our very first acquisition happened in October 2014. I know the month and year but the date is fuzzy as our first child was born only 3 weeks before. I think we zombied our way through the closing. If you ask my wife she'll probably tell you "Who are you kidding? Jay sleeps like a baby. I think the saying should actually be "I want to sleep like Jay!" And she's right. Minus the insomnia attacks ever now and then (when I'm really excited about a deal we're working on), I sleep very well. However, the anxiety of not knowing how to handle our first newborn weighed on me during that time. But she's right, I can sleep through a dump truck driving through a nitroglycerin plant!
Back to buy & hold property number 1....Our very first rental property acquisition happened in downtown Pensacola. It was a one bedroom, one bath, 600 sq ft single family home. Pictured above, undoubtedly we nicknamed it "The Little Yellow House."
The Little Yellow House was a bank foreclosure located in an up-and-coming part of downtown Pensacola. It didn't need a lot of work and by that I mean, new roof & gutters, new back porch, new flooring in the bedroom, new appliances, replace a few broken outlets & switches, and fresh paint up & all around. The most important item about this property is it hit all of our investing criteria. So we jumped right in.
Closing Day - 1st Buy & Hold - October 2014
Actually, jumping right in might be a slight exaggeration but at the time it was a huge leap for us. Being our first rental property, we were hesitant and VERY conservative on our projections. Should we do it? Should we not do it? This round of questioning and pros/cons list revolved around our conversations many, many...many times. Wow, we were nervous but we finally pulled the trigger and we're glad we did.
Pro Tip: Our biggest mistake on this property was attempting to do a lot of the interior reno work ourselves. A full-time job, getting used to the new addition and entering the holiday season, it took us 5 months to essentially put some paint on the walls. Quotes from contractors/handyman came in at $1500 with a timeline of 2-3 weeks. This would have shortened our rent ready time window by 4 months @ $600/month rent = $2400. This property rented right away and by paying a handyman $1500, would could have earned an extra $900 by having it occupied sooner...plus we'd have our late nights and weekends back!!
How we funded this acquisition: We acquired our first rental property with the use of a Home Equity Line of Credit (HELOC) from our primary residence. Three months later we actually sold our primary residence, naturally we paid off our HELOC with that transaction, and thus owned The Little Yellow House free and clear. That all important (to us) cash flow then went even higher. "We are off and running in the buy and hold game with a cash cow! We'll never sell this property!!", or at least we thought.
Fast forward three and a half years from 'we will never sell this property' to present day...
Several weeks ago I received an unsolicited message from a potential buyer. He reached out to me through this site and told me he had been following The Little Yellow House for several months. For clarity, during a brief tenant transition I placed for-sale-by-owner (FSBO) ads to test the market. I ended up renting it quickly as the demand was there and again, we'll never sell this property!
Long story short, the potential buyer made an all cash offer that would allow us to pursue some different opportunities as our investing strategy and focus has changed since 3.5 years ago. So, we accepted the offered, closed the deal and celebrated with a family lip sync battle:
So why accept the offer on a property dubbed "We'll never sell"? The ROI was great and we have been looking to add more units (reference 2018 Goals). The cash from this sale will allow us to pursue our 2018 Goals easier. For an advanced investing technique, I am taking the proceeds from this sale and pursuing a 1031 Exchange, which I'll dive into once we succeed or once our time runs out. :) Stay tuned but for now, let's do some quick math!
These are the actual #s from The Little Yellow House (I track our income/expenses through our Small Multi-Family Spreadsheet, now available for download) :
- Gain from investment: $57,670
- Sold Price: $50,000
- Annual Net Incomes (after all expenses are paid):
- 2018: $330
- 2017: $2,564
- 2016: $1,727
- 2015: $3,049
- Cost of investment: $32,479
- Original Purchase Price: $22,000
- Initial Rehab: $8,975
- Closing Costs @ Sale: $1,504
- ROI = (Gain - Cost ) / Cost or in this case....77.5%
Side Note: This is also the property where we discovered self managing is not for us. We had great tenants and rarely had issues, but with a full-time day job, growing family, trying to expand our side hustles and rental portfolio, we are happy to pay the 10% management fee to experts who are focused on that type of business (just make sure you hire the right PM).
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