Real Estate Investor · Salem, OR · Member since 2011 · 422 posts · 149 votes
I have always loved real estate investing. I've studied it off an on for a few years. After some very traumatic experiences last year I figured it was time to get my feet wet.
I probably looked at over 60 houses & made offers on probably 20. I got close several times but never got anything. It took me 6 months to finally close on a house (bought it at auction). I thought I would share my #, costs & lesson learned.
I bought this house before I discovered bigger pockets... so a lot of my decision making processes were very flawed. I made a lot of mistakes & I feel lucky that this is the house I ended up buying. I tried to get into a lot worse situations.
Real Estate Investor · Salem, OR · Member since 2011 · 422 posts · 149 votes
15y
House details:
$86000 2bed/2bath 1239sqft. Quiet neighborhood in one of the most desirable places to live in my target area.
Plan. Convert it to a 3bed/2bath and rent it at market.
Which includes. New Paint throughout (heavy smokers). New flooring in kitchen, living room & two bathrooms. Completely new master bath. Completely new bedroom. New outlets. New light fixtures... a million little things I didn't even think of.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
15y
Hey Rusty,
Congrats on the first deal!!! It gets MUCH easier from here...
One question:
It appears that as a rental, this deal is decent (assuming the $730 debt services includes taxes and insurance). You're probably looking at making $100-200/month in cash flow long-term, which certainly isn't bad.
But, if the ARV is truly $150K, this would look to be a great flip. Basically:
ALL IN PRICE =
Purchase + Rehab + Fixed Costs =
$86,000 + $18,000 + $15,000 (Estimated) =
$119,000
If ARV is $150K, that leaves a profit of about $30K pre-tax, which on an $18,000 cash investment is over 160% ROI, non-annualized.
Real Estate Investor · Salem, OR · Member since 2011 · 422 posts · 149 votes
15y
Things I learned.
-Everything takes twice as long and costs twice as much
-There are a million things that you never thought you would have to pay for (garbage disposal)
-Getting things done fast always costs more money.(I needed this project done so I could get funding on the next.)
-If you have misgivings about a agent GET RID OF THEM. my first one cost me about 20000 in potential profit.
-Quality workers a worth there weight in gold.
-Listen to others council but make your own decisions. I don't know how many times someone said I should replace something that didn't need it. I finally just started telling them that if it bothers them that much they could donate it to the project.
- I love seeing a plan come together
- A good neighborhood makes renting something so much easier. I had this one rented before it was finished... they moved in as I was installing trim.
- Just because you can buy it at Lowes or Home depot does not mean it meets building codes...
- Cross price compare. I saved about $1000 on this project in materials by comparing prices.
- and probably a million other lessons
At the end of the day I am happy with the purchase. I have a strong equity position, which lenders love. And it cash flows as far as the bank & the 50% rule are concerned.
I will be closing on my next property on the 26th. It is not in as nice of a neighborhood. But its bigger, and a dual income property so it will cash flow much better. I will keep everyone updated
Real Estate Investor · Salem, OR · Member since 2011 · 422 posts · 149 votes
15y
My strategy is buy and hold.
I feel that in this market it is the best strategy. Believe me... I've had to fight with myself a lot to keep from selling it, the equity position is very tempting. But here are my thoughts.
-the equity position hedges against future depreciation. So if something goes horribly wrong I can pull out.
-I was told that lenders look more favorably on investment properties with a lot of equity. Its a good addition to my portfolio. And will help me with my buy & hold strategy.
(per my mortgage broker)
- I have a full time job as a electrical apprentice. I need to finish the program (hedge against real estate investing doesn't work out).
- I am a bit of a miser. I don't buy things for myself. I use almost all my money for investing. So unless selling it would allow me to buy & hold "more" properties in the same are Its just not worth it to me. Especially considering how long it took to get this one.
- I would not get funding for my next deal if I held it long enough to sell it. Its a short sale and has a expiration date. It's one of those deals that i dream about. Exceptional cash flow.
If anyone see's any holes in my logic have at. I have a thick skin... and only cry when now one is around
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
15y
Rusty,
Nothing wrong with that reasoning. It sounds like you've considered multiple exit strategies, and settled on the one that will work best for you, and as long as you do that, no-one can argue.
My other big question is the rehab budget. Based on what you said you plan to do, that material/labor budget seems pretty small. Are you planning to do some work yourself or do you have a firm bid from a trusted contractor?
Again, assuming the numbers are accurate, it sounds like a good first deal...congratulations!
Real Estate Investor · Salem, OR · Member since 2011 · 422 posts · 149 votes
15y
Sorry.... I think I may have written that wrong
Its finished as of Sun. :-) Those are the real numbers. I did most of the work myself. Which throws off the labor costs a lot. So anyone reading those numbers take into account that I put in over 200hrs of my own "free" time. Don't use it as a basis for any contracted work.
As for materials I cut about $1600 out of the costs by reusing and finding the deals. So again, unless your buying the materials yourself & willing to put in the hours to bargain hunt its not very accurate for future projects.
Things I Hired out
*Drywall Finish
*Plumbing
*Framing
*Demo
Plumbing actually accounts for a 1/4 of the labor. * means that there was some cross over. For instance the Plumber did the water in and sewer out but I ran the vents. 2000 of the labor went to my friend who helped on all aspects of the job.
I closed on the house on July 7 & the Renters moved in on Aug 5