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NOTABLE! I bought my first rental property. Here’s how I did it and what I learned.

Petros

Contributor
Mar 26, 2019
15
78
19
Cincinnati OH
Hello everyone,

In November 2018 I bought my first rental property.

Characteristics:
• Purchase Price: $160,000.00
• Down Payment: $40,000.00
• Gross Monthly Rent (at time of purchase): $2780.00/mo
• Current Cashflow: $800.00/mo

I did this with a partner since it was my first deal, so we each put down $20k.


HOW WE DID IT

Here is the basic process we went though to get the place:
  1. Decided on goals for the property, purchase criteria, exit strategy, responsibilities for each of us (SUPER IMPORTANT)
  2. Identified all buildings that met the criteria in the neighborhood we were searching
  3. Contacted as many owners as we could
  4. Followed up with an interested owner
  5. Settled on a price
  6. Went through inspection process
  7. Finalized the deal/closed
More detail on each below:

Step 1: Goals/Purchase Criteria/Exit Strategy/Responsibilities
• GOAL: Invest in a multifamily building that we can buy and hold for cash flow
• CRITERIA:
o Neighborhood: Pleasant Ridge, Cincinnati
o Purchase Price: <$200,000.00
o Financing: Conventional, non-owner occupied (25% down)
o Number of units: 4
o Cashflow per month: at least $150.00/door
o Cash on cash ROI: 20%​
• EXIT STRATEGY: Hold for at least 7 years, sell if it makes sense
• UNIQUE RESPONSIBLITIES:
o Me:
 Find the deal, do the legwork
 Coordinate inspections
 Set up bank account
 Go through the closing process​
o My partner
 Property management (collect rent, find tenants, fix stuff, etc.)
 Set up LLC
 Coordinate Financing​

I cannot stress enough how important this step is, especially if you have a partner. You need to identify what you want to buy, what neighborhood(s) you like, and make sure you and your partner know who’s doing what and have the same end goal.

Step 2: Identified buildings that could meet our criteria

The main filters we used here were 4-unit buildings in Pleasant Ridge, Cincinnati. We went to the county auditor site and exported a CSV file with all apartment buildings that had at least 4 units in Pleasant Ridge. There were about 180 buildings in the neighborhood with at least 4 units.

Step 3: Contacted Owners

The auditor site included the owner name and mailing address for each building. We literally sat down and searched google trying to find a phone number connected to those names/addresses. If we found one, we added it to the list until we had done a search for each one.

Once we had the numbers, we picked up the phone and called each one. We would alternate who called each time.

Here are the responses we would get:
1. Number was invalid
2. No answer. In this case we left a message. Name, number, asked them to call if they were interested in selling
3. Someone would answer. We would say hello, tell them we are investors looking at Pleasant Ridge, and ask them if they would consider selling their building. Their responses were:
a. “Why are you calling me??!!”
b. “Thanks, but we’re not interested”
c. “Let me take your number, I’ll get back to you”​

A couple of months later I got a voicemail from an owner interested in selling.

Step 4: Followed Up

I spoke with the owner and got some basic information from him:
1. Asking price
2. Current rent
3. Condition of the building​

We set up a time to do a walkthrough.

Step 5: Settled on a Price

After seeing the condition of the building and running the numbers we started talking sale price. At first the owner wouldn’t go below $180k, we wanted to pay $140k. Negotiations stalled.

I followed up a couple months later to see if he would be willing to go lower. We settled on $160k.

I’ve attached my rental evaluation spreadsheet to this post. I highly recommend looking at this, and then trying to recreate your own annotated version. This exercise will really help you understand the numbers behind the decision you’re making. I know it helped me. YOU NEED TO MAKE SURE THE MATH WORKS.

Disclaimer: Don't take my spreadsheet as gospel. I may have some errors in there, so don’t just plug and play. The key is going through the exercise of making your own.

Next, we secured financing and set up the appraisal with the bank.

Step 6: Inspection

Instead of hiring a general house inspector, we hired four specialists for what we felt were the most important items. Basically, these are the items that cost the most to fix/replace:
• Plumber: $250 for full inspection
• Boiler Inspector: $150 for full inspection
• Roofer: $250/ea, $500 total
• Structural Engineer: $300​

So now we knew the exact condition of each of the most important parts of the house. We could use this information for price negotiation and future planning with the building.

Step 7: Finalized the deal/Closed

We went back and forth for a while. We tried to get the owner to come down in price, but he wouldn’t budge. Decided that this was ok because we felt the building was about $40k under market value at $160k.

We didn’t want to push too hard and make the owner back out.

After finalizing the deal, we sent all the final information to the bank met up with the owner and signed all the closing paperwork.


LESSONS LEARNED

1. Decide criteria early and stick to it. If you stay disciplined and buy right, you drastically reduce your risk of losing. Buying an undervalued property will give you some room for error should some unforeseen obstacle come up in the future.
2. Don’t be afraid to cold call. We never would have found this deal without being willing to pick up the phone and potentially piss someone off. It’s not as bad as you think.
3. Know what the building is worth. If I had to do this over again, I probably would have not gone back and forth with the owner too much after the inspection because he was not a super motivated seller, and it was a good deal at $160k. No need to risk the deal to try and save $3k on the sale price.
4. Hire experts to inspect specific things. General inspectors are not the best. This is a lesson learned by my partner who had already done some deals. He ended up fighting a huge plumbing issue in another building because the general house inspector didn’t catch it. By paying an extra few hundred dollars we had way more information on the key parts of the building and were able to avoid big surprises.
5. It’s not as scary as you think. Think about the worst-case scenario. It’s is not that bad. If this didn’t work out, we could’ve put the place on the market for $190k to $200k and easily broken even because we bought an undervalued place.​


Thanks for reading everyone. Hope you get some value from this. Feel free to reply with any questions or feedback for me.
 

Attachments

TurtleSprint

Contributor
FASTLANE INSIDER
Oct 25, 2017
26
27
26
Illinois
Step 3: Contacted Owners

The auditor site included the owner name and mailing address for each building. We literally sat down and searched google trying to find a phone number connected to those names/addresses. If we found one, we added it to the list until we had done a search for each one.

Once we had the numbers, we picked up the phone and called each one. We would alternate who called each time.

Here are the responses we would get:
1. Number was invalid
2. No answer. In this case we left a message. Name, number, asked them to call if they were interested in selling
3. Someone would answer. We would say hello, tell them we are investors looking at Pleasant Ridge, and ask them if they would consider selling their building. Their responses were:
a. “Why are you calling me??!!”
b. “Thanks, but we’re not interested”
c. “Let me take your number, I’ll get back to you”​

A couple of months later I got a voicemail from an owner interested in selling.
This is a big step. Something most people won't do or don't do enough. In my experience, the best deals are from those who either didn't plan on selling yet or the ones that you catch before they hit the market. Props to you and a lesson to be learned for those in other ventures.
 

Valhalla

Bronze Contributor
FASTLANE INSIDER
Mar 6, 2019
118
149
145
Purchase Price: $160,000.00
• Down Payment: $40,000.00
• Gross Monthly Rent (at time of purchase): $2780.00/mo
The prices away from the coasts always blow my mind. If I negotiated a fourplex here for double that I'd be so happy.

Thanks for posting this though, it's great to see other's process and decision making.
 

Petros

Contributor
Mar 26, 2019
15
78
19
Cincinnati OH
This is a big step. Something most people won't do or don't do enough. In my experience, the best deals are from those who either didn't plan on selling yet or the ones that you catch before they hit the market. Props to you and a lesson to be learned for those in other ventures.
Really glad we did this. Easily saved 20k here.
 

Suzanne Bazemore

Bronze Contributor
FASTLANE INSIDER
Speedway Pass
Sep 30, 2018
224
411
213
Thanks for the time you took to share your process. I particularly appreciate your method of choosing your investment property.
 

Paolo Rizzo

Bronze Contributor
Speedway Pass
I've Read UNSCRIPTED
Read Millionaire Fastlane
Sep 26, 2017
152
263
176
London
Hol
Hello everyone,

In November 2018 I bought my first rental property.

Characteristics:
• Purchase Price: $160,000.00
• Down Payment: $40,000.00
• Gross Monthly Rent (at time of purchase): $2780.00/mo
• Current Cashflow: $800.00/mo

I did this with a partner since it was my first deal, so we each put down $20k.
Holy shit. That yield is insane. I'd love to get into real estate but the prices are so expensive in London for the rent you get it's not worth it in terms of cash flow, only capital appreciation.
 

Valhalla

Bronze Contributor
FASTLANE INSIDER
Mar 6, 2019
118
149
145
How do rents compare? Do they scale up with the building's price tag?
Rents are definitely higher, but the local market is a transitional state where the population is growing, housing prices are rising substantially but individual income hasn't kept up. So we're in a speculative situation with rental property where you either have to accept lower rents anticipating higher in the future or what we're doing which is focus on forcing value onto properties via conversions to du/tri/quadplex, adding value to leased commercial space or flipping distressed properties.
 

Merging Left

Silver Contributor
Speedway Pass
Jul 20, 2014
364
646
279
29
Thanks for sharing your analysis - it's very, very detailed. I like that you consider a conservative, liberal, and best-guess scenario. Are you finding the numbers are working out like how you projected? Your analysis still lists the $200k price and rents higher than actuals. When I update your spreadsheet to show your actual numbers and current rents, I'm showing that your cash flow on your conservative estimates loses about $40/mo. Liberal estimates yield $600/mo or your $150/mo/unit goal.
 

Petros

Contributor
Mar 26, 2019
15
78
19
Cincinnati OH
Thanks for sharing your analysis - it's very, very detailed. I like that you consider a conservative, liberal, and best-guess scenario. Are you finding the numbers are working out like how you projected? Your analysis still lists the $200k price and rents higher than actuals. When I update your spreadsheet to show your actual numbers and current rents, I'm showing that your cash flow on your conservative estimates loses about $40/mo. Liberal estimates yield $600/mo or your $150/mo/unit goal.
Good question. That's not the specific analysis for the building I bought. I just took an unfilled version of the spreadsheet and threw some random numbers in there as an example.
 

Runum

Platinum Contributor
FASTLANE INSIDER
Summit Attendee
Speedway Pass
Read Millionaire Fastlane
Aug 8, 2007
5,971
4,285
1,788
DFW
Congratulations. Thanks for sharing your process. Now to duplicate and get more units. Good luck!
 

1step

Gold Contributor
FASTLANE INSIDER
Summit Attendee
Speedway Pass
Dec 4, 2012
850
1,731
496
Kentucky
Characteristics:
• Purchase Price: $160,000.00
• Down Payment: $40,000.00
• Gross Monthly Rent (at time of purchase): $2780.00/mo
• Current Cashflow: $800.00/mo
Congrats on the deal! I wonder if you could breakdown your expenses a bit and what costs are associated to take you from $2780 to $800?
 

Petros

Contributor
Mar 26, 2019
15
78
19
Cincinnati OH
Congrats on the deal! I wonder if you could breakdown your expenses a bit and what costs are associated to take you from $2780 to $800?
Here are the numbers for this past month:

$2780.00 income
-1117.00 mortgage
- 614.00 maintenance/repairs/management
- 330.00 utilites
- 278.00 saving for future CapEx

$441 cash flow

Normally maintenance/repairs aren't that high. We had some extra plumbing work that needed to be done this month. Currently working on increasing the rent.
 

MJ DeMarco

Raving Lunatic
Staff member
FASTLANE INSIDER
EPIC CONTRIBUTOR
Summit Attendee
Speedway Pass
I've Read UNSCRIPTED
Read Millionaire Fastlane
Jul 23, 2007
28,252
94,423
3,751
Phoenix, AZ
getUnscripted.com
MARKED NOTABLE, congrats on the deal and THANK YOU BIG for the nice detailed write up!!
 

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