First Time Investment Property, How To Go About It?

[Michael Stults]

While on vacation with friends recently, it came to my attention that one of the couples there has a rental property in North Carolina that they are looking to sell in order to pay off some credit card debt.  It's currently off market and when I mentioned my interest in the property, they sounded quite eager to make something happen. I have been wanting to invest in cash flowing real estate for quite some time now and to me, this seems like a great opportunity for a win-win scenario for all involved.

At first, I mentioned ways for them to possibly run the property better after hearing their current circumstances, ie, I mentioned refi the current mortgage due to their current interest rate (believe it was 5 or 6% at the moment!) and the potential to turn it from a 2 bedroom to a 3 bedroom since the house is just about 1200sqft.  Even after all the logic, they definitely seem to want to sell rather than go those routes.  To me, this seems like an opportunity that has just fallen into my lap, that I could get my feet wet and learn from, all while helping them solve their problem. So I figured, if they didn't want to try to manage the property better in order to increase the cash flow of the property, I will.  

The house appears to be quite old, though looks to be in pretty good shape.  The AC unit is new and the bathroom has been remodeled but it will need a new roof at some point. I'm only going by a few old pictures and word of mouth of the owners at the moment but they have said they would get me updated pictures of the property and a layout of the house.  It's just about 1200 sqft and is a 2 bedroom, 1 bath.  There is currently a tenant that has been there for the past 2 years that they rave about.  The property itself has been maintained by a property management company since turning it into a rental almost a decade ago.  It seems like a great way for me to get into real estate investing being a first timer.

With the house currently "worth" 89k per Zillow, I've contemplated making an offer, paying cash for the down payment and going the traditional route. Then I thought, what if I could force appreciation out of the property by doing more of a BRRRR instead? Making a new roof, 3rd bedroom and maybe even a 2nd bathroom or half bath priority for the rehab. I am thinking of contacting the current property manager to see if they have any contractors they recommend in order to get estimates on the rehab work while also asking the current owners if they have any recommendations as well. The interesting part of the entire process is I would need to do all of this from out of state. I'm currently in Maryland, but the property in question is in North Carolina. I know investors do this sort of thing all the time. If they can do it, so can I. I believe this will provide an excellent learning experience into real estate investing as I go about this.

The current rent per the owners is $795 a month. Looking at rents in the area, it seems that is actually quite high for the area averaging more in the high $600 range. The 3 bedroom homes appear to be averaging $1100 a month in the area. As far as expenses, from what I'm being told, currently the tenant pays all utilities and maintains the lawn mowing. Property management is 10% of rent, the current owners trim bushes, clean up pine needles and pressure wash the house. There is currently a quarterly pest control contract which I'm told is $100. Property taxes look to be about $860 annually and there is no HOA. I think fees for setting up and maintaining an LLC for the property should be included in the expense category as well. Comps in the area appear to be all over the place, then again, I'm still trying to comprehend this info. I've seen anywhere from 35K-150K and trying to understand all this, has me wondering if what I'm planning to achieve will work.

My dilemma at the moment is how to go about things financially.  I originally considered making an offer, making the down payment myself and going through a bank for financing.  I believe that would be the easiest route for me to take in order to acquire the property but maybe not necessarily the best route.  The thing is, some of the cash I would have to use as a down payment, I currently use to generate monthly income in the options market.  I would rather be able to continue using most, if not all of that cash for options, while finding other ways to finance the property.  

So I could go the traditional route, but getting creative with the financing to me, seems to be a valuable skill to develop since I could potentially have both, a cash flowing property and cash for cash flowing the options market.  This would in turn open a world of opportunities for me.  I understand that being a first timer, I will most likely need to have some "skin in the game", I get it and am perfectly fine with that, so just lowering my initial cash output as much as possible would be a great start.

I know I can do this, I just feel I need a little guidance with the process and I figure, what better place to find that guidance than right here.  I guess where I'm getting at with this, is if anyone has recommendations on how to go about acquiring this property and/or the processes involved with acquiring this property, it would be much appreciated.  There have been other opportunities in the past that I had been blind to due to not being who I am today, now that I am seeing these opportunities in front of me, I want to act on them but feel a little guidance could help expedite the process.

-Michael