What’s the easiest way to become a millionaire? Buy $1M in real estate and use other people’s money (“OPM”) to pay it off over the next 20 years.
Prior to November 2017, my real estate portfolio consisted of one duplex in Harrisburg, Pennsylvania. The problem is, once you do your first deal, it is so easy to get hooked on real estate investing. I finished my rehabbing my first property the very end of October 2017 and had a tenant move in November 1, 2017. (Here’s how that rehab went.). Between November 2017 through November 2018, I put under contract an additional 16 units plus a parking lot (consisting of 8 deals valued at over $1M) without truly using any of my own cash. It’s been a wild ride. Because there is so much to tell, I am breaking up those 12 months into multiple stories—one for each of the 8 properties I put under contract. Below is a summary of those 8 deals. Later, I will add a link to each deal separately with more details.
November 2017: Literally one week after renting out my first property, I made an offer on my second property—another duplex in Harrisburg, PA. It was completely vacant with all utilities shut off and had previously been purchased by a wholesaler through an estate sale who listed it on MLS. All of my cash was sitting in my first deal. So, I ended up funding this purchase and rehab through a HELOC I set up. I used conventional bank financing 80% LTV and a 10/1 ARM amortized over 30 years. Here's a quick and dirty on those numbers:
2 unit:
Purchase Price: $110,000
Rehab Cost: $46,000
Total Investment: $156,000
Gross Rents: $2,075 / Month
Mortgage (PITI): $857
Unit Subtotal: 4
August 2018: By April 2018, all of my money was tied up in my first 2 deals. I ended up doing a cash out refi on both properties, and received approximately $50,000 cash back, which was just enough cash for a down payment on two more similar properties. I did a direct mailing campaign and ended up getting a lead from an investor who had moved out of the area to Colorado and who had 2 properties in Harrisburg that I was interested in—one 2 unit and one 3 unit. In June 2018, he reached out and told me he needed $245,000 for both properties and that was his bottom line. I told him I could not get there and didn’t even bother to make a counteroffer. Instead, I told him if he changed his mind to let me know. In July 2018, he reached back out and said he needed to sell. This time, he told me he needed $225,000, bottom line. I told him I appreciated his movement on the offer and said I really wanted them both for $200,000, but I wanted to make sure the deal was fair to everyone. So, I simply asked, “How much lower can you go and keep this deal fair for you?” Without me making a counteroffer, he said he could do $220,000. Could I have pushed any more? Probably. But $110,000 per property was what I was expecting.
After putting the 3 unit under contract, but before closing, I found out that the City of Harrisburg had cited one apartment for lead (reported by a tenant prior to me purchasing it). Long story short, the seller agreed to pay the cost of all replacement windows needed for the lead abatement, and I agreed to cover the cost of all interior and exterior painting (which was a huge win because I was already budgeting for the cost to paint as part of my rehab).
Here’s a quick and dirty on the numbers for both properties:
3 unit:
Purchase Price: $110,000
Rehab Cost: $25,000
Total Investment: $135,000
Gross Rents: $2,525 / Month
Mortgage (PITI): $874
2 unit:
Purchase Price: $110,000
Rehab Cost: $40,000
Total Investment: $150,000
Gross Rents: $2,230 / Month
Mortgage (PITI): $817
Unit Subtotal: 9
September 2018: While my 2 unit and 3 unit from August 2018 were still under contract, another 3 unit was listed on MLS for $99,000. I called my realtor immediately and said I wanted to make an offer. He confirmed that it was definitely underpriced and it would go for much more. I ended up offering $110,000 for the property, and my realtor said he didn't think it was high enough to get the property. So, I told him to make it a cash offer. I didn't have the cash for this purchase, but I didn't think it would matter because my realtor was telling me I wasn't going to get the property. Well, guess what? Not only was my offer accepted, but I also beat out a competing offer of $125,000 because it was conventional financing and mine was cash. Great news—I got the property. Bad news—I didn't have $110,000 cash needed to purchase the property. I ended up calling every person I had spoken with over the past year who told me they had cash and were definitely interested in investing in a deal if I brought it to them. All of those people who were definitely interest now balked at this deal for a variety of reasons—the timing was bad, their cash was tied up in brokerage accounts, etc. Nonetheless, I found one private investor who loaned me $60,000 for the deal at 8%. And then I used hard money for an additional $60,000. Within a week, I had the cash and closed on the deal.
3 unit:
Purchase Price: $110,000
Rehab Cost: $44,000
Total Investment: $154,000
Gross Rents: $2,360 / Month
Debt Service*: $900
*Financed through private money and hard money. Only paid principal and interest before cashout refi in March 2019.
Unit Subtotal: 12
November 2018: I finished the rehab on the 3 unit (with lead issues) from August 2018, and did another cash out refi, freeing up almost $30,000. Right around this time, I received another lead on one of my mailers. It was an elderly woman who had approximately 50 units she was getting rid of so that she could move out of the area. She lived in a duplex in a desirable block of Harrisburg, PA (which had been in the process of being revitalized over the last 15 years). On the same block of her duplex (right next store as a matter of fact), she also owned a 3 unit, a single family house and a parking lot (with 8 parking spots). I told her I would take all of them. The only problem was that I only had approximately the $30,000 from the cash out refi I had just done, plus some other cash built up from rental income. So, I asked her to finance all of the properties, and she agreed.
3 unit:
Purchase Price: $110,000
Rehab Cost: $25,000
Total Investment: $135,000
Gross Rents: $2,175 / Month
Debt Service: $652
2 unit*:
Purchase Price: $110,000
Rehab Cost: $25,000
Total Investment: $135,000
Gross Rents: $1,925 / Month
Debt Service: $652
*I deferred the closing date on the purchase of the 2 unit the seller was living in until June 2019 (which is when the Seller was moving out of the area).
Single Family:
Purchase Price: $110,000
Rehab Cost: $0
Total Investment: $110,000
Gross Rents: $950 / Month
Debt Service: $652
Parking Lot (8 spaces)
Purchase Price: $25,000
Rehab Cost: $0
Total Investment: $25,000
Gross Rents: $440 / Month
Debt Service: $161
Unit Total: 18 + Parking Lot
I immediately increased the rents on the parking lot to get them in line with market rents for the area, and did then did a cash out refi the next month. The parking lot appraised for $60,000 and I was able to get a commercial loan at 75% LTV (i.e. $45,000). $25,000 of that went back to paying off the seller financing and I got to keep $20,000 and still have another $15,000 equity remaining in the deal.
I spent most of 2019 focusing on rehabbing the properties so that I could free up some cash through cash out refis in order to do more deals. It’s been a fun ride, and I cannot wait for what is to come next.
