Progress Update: Closed On First Rental Property

by James on 02/19/2010

Image of me at closing, signing papers.

Today has been a very exciting day! I closed on my first rental property! It is a single-family home, 1500 sq ft, 3 bedroom, 2 1/2 bath, 2 car garage, located about 15 minutes from my personal residence. This whole process has been exciting, but nerve-racking as well. Let me tell you how I’ve gotten to this point and what my next steps are for this property.

First, I have been hunting seriously for investment properties now for about 6 months. I am involved with a partner at 50/50. Technically, it is actually split up 50(partner)/25(me)/25(my wife). We both pay half of all costs and we are splitting the profits the same way. We have made about 5-6 offers on foreclosure properties only 2 of which were accepted. We didn’t go through with the first property because the numbers didn’t work for us after we had the inspection. The repair costs ended up being higher than expected. This is the second property. Inspection went well and repair costs are on target.

How did I find this property?

My wife and I found a local real estate group in Houston, Texas. Lifestyles Unlimited. My wife actually found their radio show hosted by Del Walmsley. After listening to him for several months, we decided to show up for their free introductory workshop. It was incredible. We joined on the spot. They have various membership levels, some of which include the benefit of being notified when a potential investment property is available.

Why do I have an investment partner?

Honestly, I am a bit nervous about the unknown. I have a great friend, who I have known since I was about 10 years old, who has been wanting to invest and we thought this was a wonderful opportunity to get wealthy together. Of course, there is the feeling that there is less risk in numbers should anything unexpected occur. If you have a strong stomach, I recommend going at it alone.

Why did you decide to buy a single-family property?

Single-family properties are a great place to start investing in real estate. Down payment requirements are lower at between 10-20% instead of 25-30% for commercial properties. Our plan is to purchase at least 10 single-family homes before moving on to multi-family properties. Owning apartment complexes is our goal.

What are my plans with this property?

Our plan is to rent this property for 3-5 years while we purchase more homes. After this period of time, we will probably be looking to sell it and use this money to buy an apartment complex.

What repairs does the property need?

Wow… this is quite a list. New roof, completely paint the interior, all new carpet and tile, 2 new bath tubs, interior sheetrock repairs, replace missing and broken doors, fix small plumbing leak, repair exterior column at front door, replace many light fixtures, replace rotted door frames, etc.

What do the numbers look like?

Purchase price was 74K. We put 20% down on property, plus closing costs, plus repair work which will cost us about 10K. So our total cost in is about 87K. The after-repair-value (ARV) for the home was calculated at 106K based on comparable sales in the neighborhood. So our unrealized equity capture should be about 19K. Only time will tell on this one when we actually sell it.

Our mortgage payment with escrow included will be $651.71. Comparable rent in the neighborhood was calculated at $1200 per month. We hope to get $1200 per month, but there is a lot of wiggle room. We’ll have to wait and see. $500+ per month in positive cashflow (rent – mortgage payment = cashflow) would be amazing! Fingers are crossed! Our first mortgage payment will be due on April 1st, so we hope to have the repair completed within 2 weeks and this place rented right after.

If it works out as calculated above, this will be $250+ a month (50% of profits go to my partner) in passive income toward my goal of 10K per month and financial freedom!

How did you calculate the numbers?

We calculated all these number based on comparable rentals and sales of houses in the same neighborhood as our property. Lifestyles Unlimited offers its members access to their Quest software for a subscription fee that calculates this for you. Also, my agent calculated this for us.

Are you going to repair this property yourself?

No way! I am not handy at all! I have been calling lots of vendors to get estimates for all the repair work. I may do some small stuff like replacing fixtures to save money… if my dad will help me out! Ha ha ha! Love you, Dad! :)

If you have any questions for me or simply want to cheer me on, please leave a comment below or send me a message. I will continue to update this post as the repair work progresses and when we actually get this property rented.

UPDATE: Check out the video walk-through before and after rehab!

UPDATE: Our first property is officially rented! $1150 per month! $500 a month in positive cash flow!

Related posts:

  1. 12 Simple Steps To Get Your First Rental Property
  2. Video: Before/After Repair Walk-through of First Rental Property
  3. Progress Update: 2010 And Goals For 2011
  4. 5 Amazing Ways That Real Estate Can Make You Wealthy
  5. Progress Update: Stock Photography and Graphics

{ 4 comments… read them below or add one }

Dad 02/21/2010 at 8:43 am

Jim,
I can help for a small “fee” and if, it does not interfere with my golf game…

James 02/21/2010 at 1:35 pm

I like the sound of that, Dad! Financial freedom must be nice!

Stephen Davis 02/27/2010 at 9:03 am

Great job and thanks for the kind words about Lifestyles Unlimited. I also love the deadline you gave yourself for 40. I believe you will do it.

James 02/27/2010 at 11:11 am

Hello Stephen! Lifestyles Unlimited has been wonderful in giving us confidence and motivation to get started in real estate investing. Thank you!

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