First Property: Pre-BiggerPockets and Running the numbers

[Theo Hicks]

Quick back story: I purchased my first property in February of this year about a week after deciding I wanted to invest in real estate. The only knowledge I had were from a couple of buddies who told me "dude, it is free money. you buy a place, rent it out, and the only thing that reminds you that you are a landlord is when you see a check at the beginning of the month." I was sold. Since then, I have read countless RE and business books, spent hours reading through BP blog and forum posts, and have listened to all of the podcasts on 2X speed. Luckily, everything turned out okay (for now) with my first purchase. The property is fully rented and I am getting a 35% ROI.

So, my question for all the BPers out there, especially the ones who purchased properties with minimal to no knowledge like myself, knowing what you know now, would you have made the decision to purchase your first property?

For myself, the answer is no. With my new knowledge obtained, I went back and ran the numbers for my property, looking at it as if it came across the listing on the MLS today. Now that I know calculators exists, I use a custom made rental property calculator I created using the BP Investment Calculators. Below are what the numbers would have looked like:

-$189,000 price (assuming I negotiated to the actually purchase price of $170,000)

-25% down payment, 4.5% interest purchase price plus reno loan (loan structure I am using for my current deals), $25,000 renovation

-Rents were listed at $500 and $750 (I would have put inserted $800 and $1000 which are the rents this type of property usually goes for in this part of Cincinnati, Ohio)

After insurance, taxes, and savings the numbers would have been: 

-8% ROI and 7% cap rate

Luckily for me, I was very stubborn and listed my rents at where I wanted them to be, and after a few weeks of vacancies and the fact that super fancy apartments charged $1350 for 1 BR unit, I was able to get the 35% ROI which I now know, is an outlier.

Cannot wait to hear about others experiences!