30 Dec CREPN #73 – The First Deal
It happened, our First Deal! We listened and learned. We asked questions, listened some more, took notes and did the exercises. Today, I am happy to report, we bought a 12 unit apartment building. Since 1997, my wife and I have been real estate investors. We have always looked at real estate investing as our pension plan. Something for the future. [x_audio_embed][/x_audio_embed]
The very first dealThe first deal was an unconventional duplex we purchased borrowing from a line of credit for the downpayment. The seller carried a note for the balance. In seven months, we sold, flipped, the property for a gain of $20,000 and I was hooked on real estate. Since then we have slowly accumulated six additional properties. Most properties lost money in the beginning, $20 here, $100 there, and so on. The focus was always on the future value. If the market never appreciated, we would still benefit from the tenants rent paying down our mortgage. The last two properties we purchased are rented to an operator of an adult group home. These two properties are the first to produce positive monthly income. Enough that we have been able to save and reinvest in more property.
Why did these two homes make money?I found a tool, which you can download for FREE. The DEAL WORKBOOK is a four page spreadsheet that shows you all of the cost and income potential of a property. It has a built in mortgage calculator, so you know EXACTLY how the numbers work. You can’t make money if you don’t buy right.
The First Apartment BuildingIn December 2016, we purchased our first 12 unit apartment building. The property is an older, well maintained two story block building that is not in a flood zone! The rents are well below market, and we have a strategy in place to increase the rents to market and reduce a couple of expenses to improve the cash flow. The property is a few blocks from the beach, and we are very excited.
Goldilocks and the four propertiesThis was the fourth property we had under contract, so if you are hunting for a property, don’t give up too soon!
- The first property we had under contract, the seller sold out from under the listing broker.
- The second property under contract, our broker walked through, and told us it was a piece of junk, thank you.
- The third property was a four unit vacation rental with less than two years of rental history. We went through inspection, and all the way through due diligence. The seller added some noise about a cash offer, which felt like pressure. The deal breaker was financing. As a four unit property it qualified for residential financing, but due to another property we have had an accounting irregularity that required additional explanation. A commercial lender offered a quarterly adjustable rate loan, which was no good.
- The fourth property was just right. The Seller had a prior sale fail due to financing. So, before we made our offer, we engaged a lender and included a commitment letter with our offer. It helped.
Lessons learned from guest on CREPN RadioThe property provided an opportunity to practice all we have learned from the guest on the show including:
- Jake & Gino with Wheelbarrow Profits: Buy Right, Finance Right & Manage Right
- Michael Blank: The benefit of multiple units and go through many deals as an exercise to learn the ins and outs so that you recognize a deal when it appears. CREPN #60
- Joe Fairless: Joe has a daily podcast, The Best Ever Real Estate Investing Advice Podcast. One of my favorite podcast. CREPN #52
- Brandon Turner: Brandon is the co-host of the weekly Bigger Pockets Podcast and does a job informing listeners and site members on how to do real estate investing. CREPN #70
- Timmi Ryerson: Smart Property Systems is a property management software system with scalable pricing, that our property manager is going to use. CREPN #54
- Bill Smith: The benefits of a Cost Segregation Study and how it accelerates the depreciation of a building. CREPN #57
- John Wilhoit: Taught me about markets & asset class. CREPN #26 & CREPN #64
- Jonathan McGuire: The IRS Repair Regulations, which go along with the Cost Segregation Study. CREPN # 61
- Jonathan Twombly shared his story about his first deal. CREPN #36
- Steven Gill: Flood insurance and how you can minimize the cost and exposure. CREPN #35