How much did you spend on first deal?

Question

Just trying to get a feel for what price brackets most started out in? And how did you finance your first deal? Also, is it possible to fund a deal with an IRA and not be penalized for taking money out?

Between credit, IRA, cash and a partner I'm hoping I can find a deal that will work out. I plan to start small. Even if I don't make a devent amount of money I will go through the motions and learn for the next deal. But being on the plus side is always good too. Also, do you guys prefer fixing up rentals or fixing flips? I've heard rentals are the way to go but I kinda like the flip idea and move on. Not sure I'd like being a landlord, but never been in those shoes either!

William Randolph · Answer

FIRST DEAL = $28K

My target was 12% cash on cash returns for however much money I put in the deal (1% a month) going in. So for my first deal I put $28K into it (20%DP, CC and $9K in repairs) on a foreclosure townhouse I paid $78K for, appraised at $90K on day 1 and appraised at $121K after repairs were complete in Hampton Roads area of VA. My target cash flow was $280/mth (1% a month) after PITI, PM and 10% reserves - I've exceed that! Just rinsing and repeating now... Good luck!

Eric Thomson · Answer

Hey Thomas,

To address the IRA question, yes and no. You can invest your self directed IRA in real estate if your custodian allows it, but you cannot personally benefit from the investment. Only your IRA can. Meaning, you cannot invest your IRA money in a house and put the profit in your savings account. All profit has to go back into your IRA. You could invest your IRA money with a partner who is not related to you, but you cannot invest with family or combine personal funds with IRA funds to invest. It's a terrific strategy if you are looking to grow your retirement fund more than 1.5% or whatever it's getting, but not if you are trying to grow usable capital.

Rent vs. Flip depends on your preference. I want passive income, but I don't really want to be a landlord. I've done it and it's not terrible if you do it right, I'd just rather get to the point where I don't have to deal with it. I am flipping my way to having enough capital to buy a larger multi-family unit(s) that I will have managed.

My first deal was a live-in flip that I bought for around $70,000 (which can buy a pretty decent house in my area). I flipped it (doing most of the renovations myself) over a 2 year period. Rinsed and repeated, now I'm on my third (with a couple of rentals thrown in there at one point). If you like flips, do flips. Maybe pickup a few rentals along the way so you can have steady income and a little insurance for when the market slows down.

Zach Davis · Answer

First personally owned rental was 25% down on a 210k property + 10k in repairs. Its worth about $240k now and I owe about $150k at 4.875%. Second was 5% on a 290k property and with another 10k in repairs, Its worth about $330k and I owe $275k at 4.25%

Kerry Baird · Answer

3 bed, 2 bath rental.  Bought for $82000 around 2002, with $8900 down on a 8.5% mortgage. Refinanced later at 6.875%, with $1822 in closing costs.  Sold for $114900 in 2003 with a check of $15031.29.

Jennifer Tan · Answer

My first deal was a JV, 30% 70% on a flip.   $60K was my required contribution in the deal.  So I used my savings of $12K, borrowed the rest through LOC, and family.  Got a return of $28K after 9 months.

Bily Elliott · Answer

I bought my first (and still only) rental property in Feb of 2009 for $19,000 cash that I had been saving up for a while.  A small 700ish sq ft 2 bed one bath house that I rented out 2 weeks later for $450 a month and have had the same tenant in there since.  I had unfortunately, not been able to build up much savings since then, but I hope to have enough to buy a second similar property by the end of this year.  Hopefully with two rentals in my portfolio I will be able to buy a third one sooner than 6 years lol.

Account Closed · Answer

$51k cash. No repairs. Owner financed at 9%, $5000 down, 16% ROI. I like doing those :).

Dmitriy Fomichenko · Answer

Thomas, you could utilize funds in your IRA only if you don't take a distribution and invest inside of your retirement account.  In order to do that you will need a Self-Directed IRA or 401k. In this case your retirement accounts owns the property, not you. All of the related expenses must be paid from the IRA and all of the income must go back into IRA. You don't have to pay all cash and could finance property inside of your IRA or 401k, but because you are not allowed to provide personal guarantee - you have to use non-recourse financing. That will require about 40% down.

Of course you can pull your retirement dollars out as early distribution, but the result of that will be taxes and penalties (combined can be as much as 50%), which make it a very poof financial choice in my opinion.

Another thing to consider, when you buy investment real estate in your IRA you don't get any tax benefits such as depreciation. Therefore if you have personal savings often it makes more sense to purchase rentals in your own name (outside of an IRA) and use your retirement dollars to invest in other alternative assets such as trust deeds, etc.

But remember that everyone's situation is unique, so be sure to educate yourself on the subject and have experienced expert in your corner.

Thomas Berridge · Answer

Wow!

You guys have done great! I really appreciate the information.  It appears I may have a little more saving to do before I get my feet wet!

Steve Vaughan · Answer

First deal was a little trailer in a family park.  Whoa that was a long time ago!  Bought for cash, sold on paper.  Did 2 of those and learned a ton!  Those were good starting points for us, as it's as easy as buying a car.  We then owner-occ'd a couple houses we turned into long-term rentals.  Then straight to seller-financed 7-unit and 10-unit buildings.  Apt building owners are familiar with creative strategies and the competition to buy them is less!  Good luck!

How much did you spend on first deal?

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