First investment property: Help deciding on a property

[Amanda Olvera]

Hi everyone, I am a new would-be investor in Kansas City, MO and looking to purchase my first deal. Currently, I own a family home that is a nice, newer 3/3 in a fantastic neighborhood and school district. However, it is a financial drain. This major expense is part of the reason I wanted to begin this journey in REI. Anyway, I’m ready to make a pretty drastic move and sell the house in order to start what I plan to become an eventual career in RE and the path to financial freedom. Also, to mention: I have two kids, 12 and 8 and am divorced so one income and one source of labor and time for rehab/reno(my Dad is a contractor and will be super helpful, though). By day, I’m a teacher so have steady income and excellent credit. I am approved for financing on all of the prospective deals so that isn’t an issue. I would do an FHA loan and occupy the place for one year. Then, move on to the next one. Do this 4-5 times before settling down into something. Okay, so I’ve looked at probably 30 places in the last month or so. A couple ‘off market’ deals(as in word of mouth through friends/associates), but mostly those I’ve found on CL, Zillow, or the MLS. As of today, the best two options would be: >>A duplex in Independence—owned by long time local investor who has been very helpful to me so far. 3/1.5 that rents for 900 each side. Asking 175k but would take 165k, maybe 160k. PITI below based on 165k. Gross rents: 1800 PITI: 1120 Maintenance: 270 (15%) He said w my Dad doing most work, I won’t have much in expenses here. I agree, but trying be conservative. Capex: 270 (15%) He also thinks this is on the high side, but trying to be conservative. Vacancy: 150 (per current owner of 15 years, has had 98% occupancy). Cash flow= -10.00. Seemingly, this is a bad deal. However, living in one side for 1-2 years would allow me to save upward of 18,000 per year. That would be tremendously valuable to me and allow me to buy other properties and have a nest egg for repairs and maintenance (though I plan to save 15k out of my primary residence for this purpose as well). I wouldn’t go into this without a reserve of cash for repairs. Other cons on this one: Location not ideal. Independence not the best area of town and 20 min from my current neighborhood. Not awful in terms of managing it, though. Easy drive and again, not a war zone, just not where I’d want to live. I’d call it a C+ working class neighborhood. >>SFR 4/2 in my school district (Park Hill) Asking 129k but could probably get for 120k. Needs about 10k in work but has brand new roof and HVAC and has had plumbing updated, too. And we’d do the work to be done ourselves. So, basically all in at 130k. Gross rents: 1400 PITI: 800 (paying out of pocket for repairs) Maintenance: 210 Capex: 210 Vacancy: 100 Cash flow: 80 This one is in a highly desirable location walking distance to three excellent schools. Very close to where I already live, too. I realize neither are great deals. At all. But, I have to start somewhere. And part of my motivation is to save aggressively through cutting (or nearly eliminating) my personal mortgage expense. Any recommendations or insight welcome:)). Thanks in advance!! Amanda

[Lee Ripma]

Well it really sounds like you want to stay in your school district! Since your Dad is a contractor are there any fixer uppers you could buy within that school district? You might be able to sell your home, buy a fixer, then refi the fixer, free up a chunk of capital and then go buy some value-add MF rentals. Fix those up, refi them, repeat, repeat, repeat!