• The Entrepreneur Forum | Startups | Entrepreneurship | Starting a Business | Motivation | Success
  1. Join 50,000+ entrepreneurs
    who are kicking butt and
    winning their dream life.

    Unscripted™ Entrepreneurship:
    A Business That Pays More Than Money, It Pays Time.

    "Fastlane" is an entrepreneur discussion forum based on The Unscripted Entrepreneurial Framework (TUNEF) outlined in the two best-selling books by MJ DeMarco (The Millionaire Fastlane and UNSCRIPTED™). From multimillionaires to digital nomads, the forum features real entrepreneurs creating real businesses.

    Download (Unscripted) Download (Millionaire Fastlane)  Register
    Registering for the forum removes this block!

  2. Forum *Official* Book Discussion
    Influence, The Psychology of Persuasion by Robert Cialdini

    The forum has voted to discuss this book. Grab it and let's discuss!
    Buy: Buy | Discuss: Influence: The Psychology of Persuasion(Review | Discuss)

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

Discussion in 'Real Estate Investing' started by Petros, Apr 13, 2019.

  1. Petros
    Offline

    Petros Contributor

    Messages:
    11
    Likes Received:
    44
    Joined:
    Mar 26, 2019
    Gender:
    Male
    Location:
    Cincinnati OH
    Rep Bank:
    $345
    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.
     

    Attached Files:

    holmzee, ruzara5, DustinH and 19 others like this.
  2. kelvinfernandezm
    Offline

    kelvinfernandezm Some Profound Quote Goes Here Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER

    Messages:
    255
    Likes Received:
    430
    Joined:
    Jan 26, 2016
    Gender:
    Male
    Location:
    Fort Worth, Texas
    Rep Bank:
    $2,239
    Congrats I want to do this too.
     
    Suzanne Bazemore and Petros like this.
  3. Petros
    Offline

    Petros Contributor

    Messages:
    11
    Likes Received:
    44
    Joined:
    Mar 26, 2019
    Gender:
    Male
    Location:
    Cincinnati OH
    Rep Bank:
    $345
    Awesome! What stage are you in? What's your next step?
     
    Suzanne Bazemore likes this.
  4. kelvinfernandezm
    Offline

    kelvinfernandezm Some Profound Quote Goes Here Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER

    Messages:
    255
    Likes Received:
    430
    Joined:
    Jan 26, 2016
    Gender:
    Male
    Location:
    Fort Worth, Texas
    Rep Bank:
    $2,239
    I'm in the saving up money for it stage. My next step is applying for the FHA loan.
     
    Petros likes this.
  5. Petros
    Offline

    Petros Contributor

    Messages:
    11
    Likes Received:
    44
    Joined:
    Mar 26, 2019
    Gender:
    Male
    Location:
    Cincinnati OH
    Rep Bank:
    $345
    FHA seems like a good option to me. Looking forward to hearing about your progress.
     
  6. SteveO
    Offline

    SteveO Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

    Messages:
    3,461
    Likes Received:
    13,657
    Joined:
    Jul 24, 2007
    Rep Bank:
    $94,213
    Great job taking action!
     
    Suzanne Bazemore and Petros like this.
  7. kelvinfernandezm
    Offline

    kelvinfernandezm Some Profound Quote Goes Here Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER

    Messages:
    255
    Likes Received:
    430
    Joined:
    Jan 26, 2016
    Gender:
    Male
    Location:
    Fort Worth, Texas
    Rep Bank:
    $2,239
    Yes it is. I'll do a progress thread once I start the process.
     
    Suzanne Bazemore likes this.
  8. TurtleSprint
    Online

    TurtleSprint Contributor Read Millionaire Fastlane FASTLANE INSIDER

    Messages:
    25
    Likes Received:
    24
    Joined:
    Oct 25, 2017
    Gender:
    Male
    Location:
    Illinois
    Rep Bank:
    $138
    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.
     
    Suzanne Bazemore and Petros like this.
  9. rynor
    Offline

    rynor Contributor Read Millionaire Fastlane

    Messages:
    56
    Likes Received:
    83
    Joined:
    Mar 15, 2019
    Gender:
    Male
    Location:
    Los Angeles, CA
    Rep Bank:
    $386
    Love this post as it sheds light on the process for me. I've been wanting to invest into a rental property, but have been intimidated by the process.

    Thank you for sharing!
     
    Suzanne Bazemore and Petros like this.
  10. Valhalla
    Offline

    Valhalla Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER

    Messages:
    73
    Likes Received:
    79
    Joined:
    Mar 6, 2019
    Rep Bank:
    $500
    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.
     
    Suzanne Bazemore and Petros like this.
  11. JScott
    Online

    JScott Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

    Messages:
    3,840
    Likes Received:
    6,326
    Joined:
    Aug 24, 2007
    Rep Bank:
    $45,147
    Congratulations!
     
    Petros likes this.
  12. Petros
    Offline

    Petros Contributor

    Messages:
    11
    Likes Received:
    44
    Joined:
    Mar 26, 2019
    Gender:
    Male
    Location:
    Cincinnati OH
    Rep Bank:
    $345
    Really glad we did this. Easily saved 20k here.
     
    Suzanne Bazemore likes this.
  13. Petros
    Offline

    Petros Contributor

    Messages:
    11
    Likes Received:
    44
    Joined:
    Mar 26, 2019
    Gender:
    Male
    Location:
    Cincinnati OH
    Rep Bank:
    $345
    Glad you found it helpful!
     
  14. Petros
    Offline

    Petros Contributor

    Messages:
    11
    Likes Received:
    44
    Joined:
    Mar 26, 2019
    Gender:
    Male
    Location:
    Cincinnati OH
    Rep Bank:
    $345
    How do rents compare? Do they scale up with the building's price tag?
     
    Suzanne Bazemore likes this.
  15. Suzanne Bazemore
    Online

    Suzanne Bazemore Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

    Messages:
    199
    Likes Received:
    350
    Joined:
    Sep 30, 2018
    Gender:
    Female
    Rep Bank:
    $1,836
    Thanks for the time you took to share your process. I particularly appreciate your method of choosing your investment property.
     
    Petros likes this.
  16. Paolo Rizzo
    Offline

    Paolo Rizzo Bronze Contributor Read Millionaire Fastlane I've Read UNSCRIPTED Speedway Pass

    Messages:
    149
    Likes Received:
    253
    Joined:
    Sep 26, 2017
    Gender:
    Male
    Location:
    London
    Rep Bank:
    $1,867
    Hol
    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.
     
    Petros likes this.
  17. Valhalla
    Offline

    Valhalla Contributor Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER

    Messages:
    73
    Likes Received:
    79
    Joined:
    Mar 6, 2019
    Rep Bank:
    $500
    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.
     
    Petros likes this.
  18. Merging Left
    Offline

    Merging Left Silver Contributor Read Millionaire Fastlane Speedway Pass

    Messages:
    348
    Likes Received:
    631
    Joined:
    Jul 20, 2014
    Gender:
    Male
    Rep Bank:
    $3,988
    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 likes this.
  19. Petros
    Offline

    Petros Contributor

    Messages:
    11
    Likes Received:
    44
    Joined:
    Mar 26, 2019
    Gender:
    Male
    Location:
    Cincinnati OH
    Rep Bank:
    $345
    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.
     
    Merging Left likes this.

Join 1000s of entrepreneurs who are rewriting life's script and winning financial freedom.

---- ----

You must be a member to join the conversation.

Create Account

Join the community fast and easy!

REGISTER

Log In

Already have an account? Login here.

LOG IN

Share This Page