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

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Petros

Contributor
Mar 26, 2019
17
98
24
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.
 

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Attachments

TurtleSprint

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Oct 25, 2017
45
39
59
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
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Mar 6, 2019
119
156
148
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.
 
OP
OP
Petros

Petros

Contributor
Mar 26, 2019
17
98
24
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

Silver Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
Summit Attendee
Speedway Pass
Sep 30, 2018
443
960
335
Thanks for the time you took to share your process. I particularly appreciate your method of choosing your investment property.
 

Envious

Bronze Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Sep 26, 2017
240
380
190
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
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Mar 6, 2019
119
156
148
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
Read Millionaire Fastlane
Speedway Pass
Jul 20, 2014
397
716
300
30
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.
 
OP
OP
Petros

Petros

Contributor
Mar 26, 2019
17
98
24
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.
 

1step

Gold Contributor
FASTLANE INSIDER
Summit Attendee
Speedway Pass
Dec 4, 2012
1,035
2,307
581
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?
 

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OP
OP
Petros

Petros

Contributor
Mar 26, 2019
17
98
24
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

Administrator
Staff member
EPIC CONTRIBUTOR
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
Summit Attendee
Speedway Pass
Jul 23, 2007
30,647
112,322
3,751
Fountain Hills, AZ
MARKED NOTABLE, congrats on the deal and THANK YOU BIG for the nice detailed write up!!
 

Angal Faria

New Contributor
May 1, 2019
35
19
16
Dubai
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.
I am here now.....the owner is interested in selling and conversation going on to the deals of money.
 

Phil K

New Contributor
Dec 29, 2016
16
11
17
Massachusetts
Congrats on your first purchase! I'm just curious how your cash flow only $800 (no disrespect - honest question)?

With a $120k mortgage ($160k purchase price and $40k down) and a 30 year fixed at 5%, your mortgage payment can't be higher than $650/month. I'm assuming Cincinnati taxes aren't super high, either... And your rental income is huge compared to the purchase price (at least from my perspective as an investor in the Boston area).

What are your big ticket expenses that are eating away at that rental income besides maybe taxes, water, and insurance?
 

Jaden Jones

Igloo Builder
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Aug 22, 2018
273
351
188
Canada
Congrats on your first purchase! I'm just curious how your cash flow only $800 (no disrespect - honest question)?

With a $120k mortgage ($160k purchase price and $40k down) and a 30 year fixed at 5%, your mortgage payment can't be higher than $650/month. I'm assuming Cincinnati taxes aren't super high, either... And your rental income is huge compared to the purchase price (at least from my perspective as an investor in the Boston area).

What are your big ticket expenses that are eating away at that rental income besides maybe taxes, water, and insurance?

Im also curious about this, your mortgage payment seems really high. Do you have a breakdown on this?

Also as I side note, prices down there are amazing. A barely livable fourplex here is 600k, most start at 800k. Might actually look into selling my rentals here and buying down there....
 

Phil K

New Contributor
Dec 29, 2016
16
11
17
Massachusetts
Also as I side note, prices down there are amazing. A barely livable fourplex here is 600k, most start at 800k. Might actually look into selling my rentals here and buying down there....
What area are you from? I would love to see anything with 4 units within around the Boston area fall below $1m - even if it was completely hollowed out to the studs. Problem is, it seems like anywhere beyond 20 miles outside the city isn't desirable for tenant base...

When I see numbers like OP's, it makes me really think about buying out of state. My concern is knowing nothing about the area and knowing how certain "pockets" of geography, even in a good overall area, can hide some big issues...
 

Jaden Jones

Igloo Builder
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Aug 22, 2018
273
351
188
Canada
What area are you from? I would love to see anything with 4 units within around the Boston area fall below $1m - even if it was completely hollowed out to the studs. Problem is, it seems like anywhere beyond 20 miles outside the city isn't desirable for tenant base...

When I see numbers like OP's, it makes me really think about buying out of state. My concern is knowing nothing about the area and knowing how certain "pockets" of geography, even in a good overall area, can hide some big issues...
Im in Calgary, Canada. There is a big problem here with overpriced housing right now in all the major cities. Average single family home here is 450k. There is literally nothing for under 300k. It gets worse moving west. Houses in Vancouver are over a mil.
 

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