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

Jaden Jones

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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.
 
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Phil K

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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

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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
 
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fishgodeep

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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
 

Ismail941

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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!
 

Angal Faria

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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
 
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Angal Faria

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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

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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

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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.
 
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Rivoli

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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

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Aug 27, 2019
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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!
 

Ing

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Interesting. Thanks for sharing.
A good way for the prozess.
 
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MiamiFastlane

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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.
Thank you so much for this. Looking to purchase my first property too and this helps conceptualize a lot of the stuff I've been reading :)
 

ClarkeLDN

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Dec 23, 2021
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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.
Great post - would be interested to hear how it's been since you bought it, any issues? Anything else you've learned?
 

Daudi

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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.
Thanks, I am also looking to buy a house then move out and have it as a rental.
 
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LateStarter

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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.
Congrats on taking the first step!

If you have utilities separately metered for each unit, start making the tenants responsible for their own utilities as they start turning over. Otherwise they won't give a shit how much hydro and water they use and you'll be on the hook for it all.

How much are your management fees? Why did you take that option rather than self managing it? Just curious and it may help others make that decision as well.
 

LateStarter

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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.

Great! I'm happy that others are scared off of the Toronto market. More for the rest of us! :devil:

I've made pretty much all my money by investing in real estate in Toronto over that past decade. The first deal I bought was a triplex for $425k with 20% down. After minor renos (~$10k) and one year of stable rents I refinanced and took out $200k while making sure to kept it all cash flow positive. With the $200k we bought more properties. The triplex is probably worth around $1.2M now in the current (down) market. But it's location also makes it prime to be bought by a developer for commercial/condo redevelopment.

More recently, just before Covid I bought 2 cottages in Muskoka on opposite ends of a smaller quiet lake to use as short term rentals. Total cost $1.3M + ~$40k for renos. Covid filled my bookings for 2.5 years solid because no one was travelling abroad, drove everyone out of the city and literally doubled their value 6 months after purchasing. I haven't pulled out any equity yet, I'm just enjoying the cashflow while keeping some time booked for myself to vacation for free.

I bought a century farmhouse as a flip last Nov on the north east side of the GTA for $580k. It was a fire sale because it was mid-reno with open permits and not livable. No one wanted to touch it because of the open permits and because you couldn't get a mortgage on it. I got the seller to give me a VTB at 4% for 6 months, extendable for up to 9 months. I self-funded the renos (~$200k from a HELOC) and did the work myself. The market collapsed and we couldn't get our asking price ($1M) but we got a mortgage appraisal for more than that. We pulled all our money out, and got it tenanted on a 1 year lease (paid for by a local University for a foreign professor). It's costing me $200/mo to carry it but realistically my other properties fund it. When the market rebounds we'll sell, but for now it's another (free) asset in our portfolio.

My biggest problem with long term rentals is low turnover of tenants. Market rates are skyrocketing but the maximum increase for landlords has been held to 0-2% recently. If your place is nice enough, no one wants to move out. So you get behind in the rents (compared to market rates), and they're harder to sell as a result.

All this to say, appreciation isn't a *potential* it's how massive wealth is made. If you manage to find any properties 'deeply under market value' let me know. We haven't seen any in a very long time.
 
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Guest-5ty5s4

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Congrats on taking the first step!

If you have utilities separately metered for each unit, start making the tenants responsible for their own utilities as they start turning over. Otherwise they won't give a shit how much hydro and water they use and you'll be on the hook for it all.

How much are your management fees? Why did you take that option rather than self managing it? Just curious and it may help others make that decision as well.
Yeah I’m looking at those numbers going… if they add back in their savings for capex (they haven’t had to spend on capex, they just saved the money, so that’s cash flow) and the utilities (tenant should pay for utilities ideally), they would be CF more like $1,000/month!
 

gpetukhov

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Great! I'm happy that others are scared off of the Toronto market. More for the rest of us! :devil:

I've made pretty much all my money by investing in real estate in Toronto over that past decade. The first deal I bought was a triplex for $425k with 20% down. After minor renos (~$10k) and one year of stable rents I refinanced and took out $200k while making sure to kept it all cash flow positive. With the $200k we bought more properties. The triplex is probably worth around $1.2M now in the current (down) market. But it's location also makes it prime to be bought by a developer for commercial/condo redevelopment.

More recently, just before Covid I bought 2 cottages in Muskoka on opposite ends of a smaller quiet lake to use as short term rentals. Total cost $1.3M + ~$40k for renos. Covid filled my bookings for 2.5 years solid because no one was travelling abroad, drove everyone out of the city and literally doubled their value 6 months after purchasing. I haven't pulled out any equity yet, I'm just enjoying the cashflow while keeping some time booked for myself to vacation for free.

I bought a century farmhouse as a flip last Nov on the north east side of the GTA for $580k. It was a fire sale because it was mid-reno with open permits and not livable. No one wanted to touch it because of the open permits and because you couldn't get a mortgage on it. I got the seller to give me a VTB at 4% for 6 months, extendable for up to 9 months. I self-funded the renos (~$200k from a HELOC) and did the work myself. The market collapsed and we couldn't get our asking price ($1M) but we got a mortgage appraisal for more than that. We pulled all our money out, and got it tenanted on a 1 year lease (paid for by a local University for a foreign professor). It's costing me $200/mo to carry it but realistically my other properties fund it. When the market rebounds we'll sell, but for now it's another (free) asset in our portfolio.

My biggest problem with long term rentals is low turnover of tenants. Market rates are skyrocketing but the maximum increase for landlords has been held to 0-2% recently. If your place is nice enough, no one wants to move out. So you get behind in the rents (compared to market rates), and they're harder to sell as a result.

All this to say, appreciation isn't a *potential* it's how massive wealth is made. If you manage to find any properties 'deeply under market value' let me know. We haven't seen any in a very long time.
wow - great thread on the GTA Market , have you tried to do cash for keys with the tenants to be able to renovate the units and add value ?
 

LateStarter

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wow - great thread on the GTA Market , have you tried to do cash for keys with the tenants to be able to renovate the units and add value ?
I don't want to hijack this thread. The point of my earlier post was to point out through my experience how limiting beliefs can hold you back from huge opportunities. Assume you know nothing before you assume you know enough.

People think there's no opportunity in an expensive market, but they're wrong. Don't tell me there are no opportunities unless you've tried and failed. There are way too many armchair investors with more opinions than actions to their name. (No offense intended to Michael Burgess or anyone else.)

Again, not to hijack this thread but to add more context around this example:
Toronto is the biggest and most ethnically diverse city in Canada. 500k new immigrants are coming to Canada every year, and another 100k+ refugees. Where do you think these people will want to live? Likely in communities of other expats where they can connect and get support (ie boroughs of Toronto). But where CAN they live when we're already facing massive housing shortages? Demand>Supply so prices are bound to go up. Demand will lead to building. Supply is bound to go up over time but it can never increase enough to meet the demand.

These new citizens are more driven and ambitious than anyone born and raised in this level of comfort. They will want to succeed in their new life. They'll want to become homeowners and sponsor relatives to come join them. They'll want to put their kids through University ....and they won't bitch about how unaffordable house prices have become. They'll earn the life they want to live instead of complaining about how cheap it 'used to be' because they don't have that history and understand it's the cost of the opportunity they've been given.

The point is, new opportunities are created every day. I live in that market EVERY DAY. I started there and continue to buy there because when you look at it, seriously look at it, it makes sense. You have to dig to find the gold. You have to run numbers, contact agents and spend time each day to really know what's out there, understand why people are selling, why some houses aren't moving, what the real potential of a property is. This is the grind you don't see that precedes 'taking action'.

Is there a shortage of housing? Abso-F*cking-lutely! That is one of many problems with this market. And I'm trying to do my part to help solve that problem, even if it's just one family at a time. I'm building and renovating houses to put houses on the market and give people more options to buy or rent. I'm looking at building ADUs to increase the supply of smaller rental options on existing single family properties. That rental income can help the home owners offset the increased cost of their own house while providing more affordable housing for someone else.

AND YOU CAN TO!

These are all problems that I can't solve by myself and they aren't unique to the Toronto market. No matter where you are investing you can find the opportunities to help people.

That's why even if I'm lagging behind on rents compared to market rates, right now I don't care. I'm still making money and the little bit of money that I'm leaving on the table is helping the family who is living in my unit. Right now, they need it more than I do. My payback for helping them is in the equity they're building for me.

Find the opportunities and act on them.

:peace:
 
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andyhaus44

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We all know that Slowlane millionaires use their house for net worth and Fastlane millionaires use their house for residency, but if you own a paid for rental property and have a tenant, do you include that property's equity in your net worth?
 
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Guest-5ty5s4

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We all know that Slowlane millionaires use their house for net worth and Fastlane millionaires use their house for residency, but if you own a paid for rental property and have a tenant, do you include that property's equity in your net worth?
Do we know that? The Section 121 Exclusion is a pretty attractive part of the tax code, and can be used to your advantage if you so choose. Everyone has different goals and strategies. I like buying houses under value with extremely low down payments, and living in a house while improving it is kind of fun to me.

Even super rich investors like Ben Mallah sometimes do this. It's a pretty unscripted way to use a house - nobody says you have to live in a 30 year mortgaged home for 30 years.
 

LateStarter

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We all know that Slowlane millionaires use their house for net worth and Fastlane millionaires use their house for residency, but if you own a paid for rental property and have a tenant, do you include that property's equity in your net worth?
To answer your question, primary residence is not included in your net worth calculations. Equity in investment properties are.

You residence can be a good opportunity to apply some leverage and boost your net worth, even if it's not part of the calculation. The lower your investment in your primary residence (buy low and renovate, etc), the more you can spend elsewhere on things that contribute to your net worth.

But it's up to you to figure out a strategy that works for your circumstances. Some have their business own their primary residence and rent it back to the owner. With that, it's all considered part of your net worth.
 
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Guest-5ty5s4

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To answer your question, primary residence is not included in your net worth calculations. Equity in investment properties are.
Where is this rule written?

When I apply for a loan, equity in my primary residence does get included. Every bank and lender includes it. Asset-based lenders want to see that equity. They will lend you more based on that equity.

I know Kiyosaki says "your house is not an asset," and his point is metaphorical and has a good symbolic meaning, but it's not true, financially.
 

LateStarter

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Where is this rule written?

When I apply for a loan, equity in my primary residence does get included. Every bank and lender includes it. Asset-based lenders want to see that equity. They will lend you more based on that equity.

I know Kiyosaki says "your house is not an asset," and his point is metaphorical and has a good symbolic meaning, but it's not true, financially.


The primary residence is not counted as an asset in the net worth calculation. The term “primary residence” is not defined in SEC rules but is commonly understood to mean the home where a person lives the most of the time

Banks don't give a F*ck about where you're living. Their 'net worth' calculations are designed to make you feel richer than you are so you'll leverage yourself more aggressively and take bigger risks. They just want to know what they can pillage if things goes south.
 

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