Closed on my first 4-family! The numbers and how I got there...
After years of interest in real estate, I found BiggerPockets in February of this year... and today, I closed on my first 4-family rental property. Here are the numbers and some photos... plus four things that helped me do my first deal!
THE DEAL
I found the deal on the MLS through my Realtor. It took a while of searching, running numbers, visiting properties, and making offers. It was completely frustrating at times, but finally I found a 4-family in a neighborhood in South St. Louis City that didn't need much work and already had three of four units rented. Two units are 2/1, and two are 1/1. Here are the numbers:
- Purchase Price: $139,000
- Estimated Repairs: $10,000
- Financing: Conventional, 30-year fixed at 5% with 25% down
- Monthly Income: $2,235 (as soon as we fill the fourth unit... and more room to increase income as tenants turn over)
- Monthly Expenses: $1,696 (included PITI, vacancy, utilities, property management, repairs, capex, etc.)
- Monthly Cash Flow: $539 (I expect this to increase to closer to $700 as tenants turn over. It will all be reinvested into further buy and hold investments.)
- Cash on Cash ROI: 13%
FOUR THINGS THAT HELPED ME GET MY FIRST DEAL
1. Listening to BiggerPockets podcasts.
Not long after joining BiggerPockets, a colleague suggested I start listening to the podcasts, starting from episode 1. So @Joshua Dorkin and @Brandon Turner have been accompanying me to and from work every day since. (My one-year-old daughter hears it, too, so I won't be surprised if some of her first words are "deals" and "cash flow"... it won't bother me, just keep the language clean, gents.) I plan to focus on buy and holds, and may mix in some flips to build capital, and not every podcast focuses on those topics. But I learn something valuable (usually several valuable things) from every podcast, and I'm increasing my knowledge of the industry overall. That knowledge also helped me build my business plan. It's nothing fancy... just three pages outlining my vision, goals, criteria, etc... but it's given me much needed clarity. If you haven't started listening, start now! Top 40 Hits can wait.
2. Networking, networking, networking.
I know... it can be awkward sometimes. It's not the most natural thing in the world, and sometimes you feel a little bit like a stalker. (No? Just me?) Seriously, though... it doesn't always feel natural, but it's worth it. Through networking on BiggerPockets, I met my agent and property manager @Peter MacKercher. He's been great to work with so far, and I definitely recommend him for anyone interested in investment properties in St. Louis City! Of course, I'm also networking elsewhere. When I wanted to learn more about a neighborhood, I searched around online and eventually found the name of the neighborhood association's president. I tracked him down on LinkedIn and arranged to meet for coffee. He's not a real estate investor himself, but he's definitely invested in the continued development of his neighborhood, and is happy to connect with quality investors with that shared goal. He even sent me an email not long after with a lead on a house that would be going up for sale soon! It didn't meet my criteria, but I was excited to have an opportunity coming to me instead of the other way around. I will definitely be keeping in touch with this gentleman going forward. Bottom line, network... just make sure you do it in a genuine way with a purpose in mind.
3. Running - and rerunning - the BiggerPockets calculators.
I upgraded to Pro pretty early on to get unlimited access to the BiggerPockets calculators. I'm a big believer in scenario planning - what's the best case scenario, and what's the worst? What do I think is the most realistic scenario, and why? More seasoned investors probably don't need to run multiple scenarios, but as I newbie I feel more comfortable exploring a few possibilities. And the process helps me learn and internalize the math. The BiggerPockets calculators make it easy to run the scenarios quickly. If the cost of Pro is too much for your budget, there are certainly other ways to do this... but if you have the money, and you're serious about investing, I recommend Pro!
4. Ignoring the knots in my stomach and jumping in.
At the end of the day, I know that my goal of achieving financial freedom before I'm too old to enjoy it requires that I start acting NOW. Part of me is very risk averse. But another part of me is used to jumping right into a challenge... and that's the part of me that has led to my best experiences. It's how I ended up serving in the Marine Corps for 4 years, how I ended up with an MBA and a good paying job that followed, and now how I've closed on my first cash flowing multi-family property. These things all made me nervous, but one quote always reminds me not to let fear drive my decisions: "A ship in harbor is safe - but that's not what ships are built for." (John A. Shedd).
Hope this post was helpful, or at least mildly entertaining. Good luck, fellow newbies. Go do what you were built for! Can't wait to read your stories.