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

ZeroTo100

Silver Contributor
Read Millionaire Fastlane
Speedway Pass
Feb 2, 2016
345
583
255
New York City / New Jersey
It always amazes me how much cheaper these types of units are outside of NY and NJ.

Forget cash flow, you’re lucky if you get close to breaking even over here (unless you’re buying cash).

I always wonder how hard it would be to manage property long distances (not vacation style rentals).

Very tempting to hop on a flight west and shop around lol.
 

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Jaden Jones

Igloo Builder
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Aug 22, 2018
271
340
174
Canada
It always amazes me how much cheaper these types of units are outside of NY and NJ.

Forget cash flow, you’re lucky if you get close to breaking even over here (unless you’re buying cash).

I always wonder how hard it would be to manage property long distances (not vacation style rentals).

Very tempting to hop on a flight west and shop around lol.
People do it all the time, fly out, buy it, hire a property management company to take care of it. Fly home.
 

Phil K

New Contributor
Dec 29, 2016
14
9
15
Massachusetts
People do it all the time, fly out, buy it, hire a property management company to take care of it. Fly home.
I've considered doing the same thing - the issue is, knowing that there are "pockets" of any general area can be vastly different than the norm, it's hard to really gain quality knowledge, or "get a good feel" for an area for making a determination of whether it's a good investment.

I wonder what areas are seeing good returns nationally for say, 4-10 unit buildings... Suggestions welcome, and I'd be happy to share information about the Boston area in return!
 

Angal Faria

New Contributor
May 1, 2019
35
19
16
Dubai
I am now in step six. I offered the owner $156k and the owner asking for $165k. There is no more difference between price, and I confirm that the deal settled down within a week.
Here have a pic of the house bellow.
villas1.jpeg
 

fishgodeep

Bronze Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Oct 11, 2015
80
269
167
Edmonton
Great post @Petros. I've been thinking of purchasing a multi unit complex for renting and you've shared a lot of valuable infornation here. Especially about contacting the owners directly, you never know what someone's position is until you ask them.

Keep us posted on your progress
 

Ismails

Life Student
FASTLANE INSIDER
May 7, 2019
122
105
69
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.
Congrats! Nice & Simple Breakdown of Real Estate! Love your work!
I am inspired!
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
FASTLANE INSIDER
Speedway Pass
Aug 24, 2007
4,083
7,454
1,731
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?
Generally speaking, for a typical rental property in a typical city, you should expect your long-term expenses to be about 50% of your market rent if you have professional property management. In other words, if market rent for your property is $1500/month, a reasonable first assumption would be that expenses are about $750/month, take or leave a few dollars.

Where does 50% of the revenue go? Here are just a few of the expenses you'll see:

- Vacancy
- Taxes
- Insurance
- Property Management
- Repairs
- Utilities
- Turnover
- Lawn Maintenance
- Legal Costs
- Accounting Costs
- CapEx

Here are the three reasons that most investors (or wannabe investors) don't really believe that 50% number:

1. They look at short-term expenses, not long-term. For example, their units are rented so they don't factor in vacancy. They choose to ignore the fact that every 18 months, on average, they will have tenant turnover. This may take a day, a week, a month or more, but ultimately, it's not a negligible expense. You'll lose rent for that time period, will have turnover costs (new paint, carpet, etc), will be paying for utilities while the unit is vacant, etc. Just because it's not vacant now (or since you've owned it) doesn't mean you should be ignoring the expenses that go along with vacancy.

2. They ignore capital expenses -- big ticket items like new roof, new HVAC, new water heater, electrical upgrades, siding repair, etc. Many investors think to themselves, "I just renovated the property...I won't have those expenses for another 20 years!!!" Perhaps. But, you *will* eventually have them...or if you sell the property before you have them, your buyer will discount the purchase price based on the depreciation. For example, if you spend $5000 every 20 years on a new roof, that's equivalent to $250/year. Are you factoring in that $250/year in capex into your numbers? You should. And you should factor in annual costs of the other big ticket items (again, HVAC, water heater, siding, electrical, plumbing, etc). Even if those expenses are a long way off, the depreciation is on-going, and you should be amortizing the costs.

3. They ignore their value of their own time. For example, property management typically costs about 10% of gross rents. Many landlords feel that if they do their own property management, suddenly it's FREE! But, it's not free. You're now spending your time doing that task, and your time isn't (or shouldn't be) free. Just because you're managing your own property, or mowing your own lawns or fixing your own toilets doesn't mean you shouldn't be including the cost of those things in your financial analysis. One day you may choose not to do these things (or may not be able to) and when you go to sell the property, your buyer will certainly not assume those things will be free.

So, on the OP's property: If his market rent is $2780/month, his long-term expenses are likely somewhere around $1390/month (give or take). So, his Net Operating Income (NOI) is likely around $1390/month. If his mortgage is $650/month, his cash flow is likely around $740/month.
 

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Angal Faria

New Contributor
May 1, 2019
35
19
16
Dubai
Looking to purchase a villa and think to give it in rent. I think it will be a great deal for me. The owner calls me next month to talk to him about this.
Here is the pic of the villa.
villa jpg1.jpeg
 

Angal Faria

New Contributor
May 1, 2019
35
19
16
Dubai
I make a search on google for the residential and commercial rental property in Dubai. There are so many sites, and they provide various kind of rental property long or short term both and it provides their rentals in a different zone in Dubai. I decide to spend some days with my family in Dubai enjoy with my little son and daughter and also with my wife because of my business purposes; I don't make time to give my family. I decided to appoint a 2-bedroom apartment and search on it. There are a lot of sites I just visit one Property For Rent in Dubai | Apartments | Villa| Commercial – DubaiRent but couldn't book yet looking forward to knowing something more from you.
 

pashka

Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Jun 24, 2018
44
60
115
Toronto
woah, those numbers add up!
I couldn't believe and went to google it up, wow real estate is much cheaper there compared to my city. Here in Toronto you're looking at 500k condos (1b) and 900k homes (min) which is like 380k & 680k USD respectively. Doesn't change much away from the city.

Makes me wonder if I'm looking in the right place.

Congrats on your first purchase!
 

Michael Burgess

Bronze Contributor
Speedway Pass
Sep 30, 2014
121
341
171
25
Ontario, Canada
woah, those numbers add up!
I couldn't believe and went to google it up, wow real estate is much cheaper there compared to my city. Here in Toronto you're looking at 500k condos (1b) and 900k homes (min) which is like 380k & 680k USD respectively. Doesn't change much away from the city.

Makes me wonder if I'm looking in the right place.

Congrats on your first purchase!
The Toronto market is atrocious. I don't think I would ever invest there, but if I did, I think the only redeeming factor would be *potential* appreciation, or if you could buy a property deeply under market value and flip it.

The whole GTA is priced in that range, but if you're willing to travel a bit (say two hours west), London, St. Thomas, and other markets in that area can offer pretty good cashflow while still getting some appreciation. Lower barriers to entry there as well.
 

Rivoli

Bronze Contributor
FASTLANE INSIDER
Speedway Pass
Jun 4, 2018
102
294
167
Orange County, California
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.
This is surprising to me because in California, new mortgage and present rent payments are generally the same. For a place to rent for 2800 a month normally asset is like 750k. A three bedroom I grew up in valued 180k rented for $1400..

How is the property so cheap but rent so high?
 

Chicken_Dude

New Contributor
Read Millionaire Fastlane
Aug 27, 2019
5
1
14
Hi there!
Great job taking action and purchasing your investment property.
Question: Would you recommend buying rental real estate in another state, given that the properties in my state are very expensive?
Thanks!
 

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