A newbie's second deal

[Andy Bastone]

I’ve been interested in real estate investment for about four years now, and just last month purchased my second house in Columbus, GA.A business partner and I bought a 60 year old 3BR/1BA Dutch Colonial in the Lake Bottom Park District, a gentrifying neighborhood where mother-in-law suites are quite common.Ours has a duplex in the back that rents out of $450 a piece and we are living in the Dutch Colonial with a third roommate.We bought the house for $116,000 which was definitely a steal considering the location and cash flow potential of the property.The previous owners had inherited the house from their late mother a few years ago.They were having trouble selling it and eventually brought their list price down from $169k to $129k.

When I first looked at the house I knew it was a great deal based off the location and apartments, and I couldn't figure out why it hadn't sold.Apparently the problem lied in the fact that there were no comparable homes in the area, so FHA and VA loans were not an option. Furthermore, the house was really dirty.The guys living in it had just graduated college and were still living out their fraternity lifestyle in the house a la the comedy television series Workaholics. Of course I didn't mind being that I am a 25 year old single manchild myself, but to that young professional couple or established family the beer bongs and playboy posters were a pretty big turn-off. Now these guys weren't quite distressed sellers, but they wanted the cash and realized the financing hurdles limited their options.

We received a portfolio loan from a local community bank at 4.5% interest rate.It required a 15% down payment, but it also meant we didn’t have to deal with mortgage insurance, which I consider to be a self fulfilling product and a big waste of money.I was really surprised we could get that rate for loan that wasn’t federally backed.The bank appraised the house before closing and the appraisal came in at $142k; it was probably the best surprise in the entire process as we immediately walked into $26,000 of equity. All told our mortgage, tax, and insurance payments come out to about $750 and if all units were rented out we would pull about $2000 a month.As it stands now we have one unit rented and our roommate pays us $300 a month, so we still cover the mortgage even with 50% occupancy.

The house definitely needed some TLC when we closed.It was pretty much trashed, but the previous owners left a consolation prize of steaks and a case of beer in the fridge.The cleaning was a process by itself that included the excavation of about 3000 lady bug carcasses.We also gave the house a fresh coat of interior pain, re-plastered the ceilings, ripped out the old carpet and revived the original hardwood floors, fixed the roof, installed fans and a washer dryer set, and replaced several broken window panes. Pretty much the same things needed to be done in the apartments as well.We went ahead and did the upstairs apartment so we could start getting some revenue from it, but left the downstairs vacant for further renovations.

Now all of that would have been impossible without my business partner, who has been remodeling properties for over seven years. He also happens to be my best friend from high school. I’ve heard many people say not to go into business with your friends or family.I believe it’s just a matter of an individual’s expectations and personality.Geoff and I completely trust each other, compliment each other’s skill sets, and will be brutally honest when necessary.We wrote down all our expectations in a contract before we started and use that as a starting point for any debate about investment strategies or house remodels.I honestly don’t see there being much conflict there as both of us are easy going, like minded guys.Having Geoff around is a huge help as I am not the handy type.

We eventually plan to add a second bathroom to the main house and remodel the kitchen and both apartments. Those projects may be a few years off, but they would certainly add significant equity to the property and up our rents as well.Similar houses in the neighborhood have sold for $250,000, so our ceiling is pretty high; though we practice the buy and hold investment strategy and don’t plan on selling for a long, long time.

Overall I’ve had a great experience buying this property.It feels great to actually work on your investment instead of watching numbers on the screen representing some far off company you have no control over.I’ve dabbled in day trading and I can say without a doubt that real estate investment is more fulfilling and more fun.I plan on buying more properties in the Columbus area and I’m hoping to expand operations into Athens, GA soon.To anyone looking to get into the real estate business, remember the biggest hurdle is your own self doubt and apathy.

Andy Bastone