Bought my first rental property

[Seth B.]

Hi, my name is Seth and I am new to BP.

I just closed on my first rental property and wanted to get some feedback from people on weather they thought it was a good buy for a first timer.

The property is a duplex built in 2007. Over all it's in very good condition, just a few minor repairs needed (maybe $2,000 worth of repairs). Each side is 1,050 sqft with 3 bedrooms and 2 bathroom per unit. They had tenants in place when I purchased it. One of the tenants has been there for a long time so that persons rent is below market. The other tenant has also been there a long time. One unit rents for $750/month and the other rents for $650/month. So total rent per month is $1,400.00 I paid $85,000 for it (it sold new in 2007 for $154,000). I put 25% down and my monthly mortgage payment including taxes and insurance is $550.00/month. I purchased the property in another state so I have a property management company managing it. They charge 7%, so about $98.00/month. The tenants pay all utilities including water and garbage.

So what do people think about the numbers? It was my first rental property purchase, so I hope I did ok.

I want to buy more rentals over time. But if I had to put 25% down out of my own pocket each time I would not be able to buy more as quickly as I would like to. I have learned a lot reading BP forums on other ways to finance rental properties with less money down. So I may look into a few of them.

[Seth B.]

I decided to update everyone on the duplex I bought since it has been over a year since my last post. I had a rough start after buying my first rental property out of state as you can see from my older posts.

I am happy to say things have gotten better over time…

About 1 month after purchasing the property ( I purchased it on 9/20/2013) I found that one of the existing tenants never put down a deposit when they moved in. So I figured I would tell my property manager to ask that tenant to pay a deposit. This I feel was a mistake (for a new rental property owner getting his feet wet) because the tenant put in their 30 day notice instead of paying the deposit. So I was hit right off the bat with a 1 month vacancy and around $1,800.00 in repairs (the tenant had lived there for 6.5 years). The tenant smoked in the unit (even though their original lease said no smoking), so it had to be repainted and several other smaller items needed repair. The old tenant was paying $650/month in rent. The new tenant signed a lease for $800/month rent, so at least I received a rent increase.

Since the property was a duplex I assume there was a good chance that this tenant told the other tenant about the "new owner" asking for a deposit. This may have made the other tenant worry that the new owner was going to ask for additional deposits or possible raise the rent. So a couple months later the other tenant put in their 30 day notice. This time it took 1.5 months to find another tenant which signed a lease for $765/month.

During the second vacancy, the unit was broken into by a person who had been causing a lot of problems in the neighborhood. The tenant on the other side of the duplex heard some noises one night and called the property manager. The property manager came over to the unit and came face to face with the burglar. The manager chased the burglar (ya not real smart) for a few blocks and they just happened to run right past a parked police car. The burglar was arrested and has a lengthy record so he will be looking at some real jail time. I sent the police report to my insurance company and they covered all but $800 (my deductible) of the damage caused.

Now that I have had two new tenants for around a year, things have went much smoother. My total rents each month is $1,565/month. My property management company charges 7% which comes to $109.55/month. That leaves me with $1,455.45/month. I bought the duplex for $85,000 and put 25% down. My monthly mortgage payment which includes taxes and insurance is $585.00/month. This would leave me with $870.45 each month for the last year. But after some small maintenance items that have come up over the last year I estimate I clear about $820/month on the duplex.

Since purchasing the duplex 1.5 years ago it has appreciated also. I estimate it to be worth about $110,000 right now. So since I purchased it for $85,000 (which was about $8,000 under what it was worth at the time) it is worth $25,000 more than I purchased it for.

As for the $820/month I am clearing I just deposit into a dedicated bank account each month and don't touch it. Because I understand that some day the roof will need to be replaced, possible AC Unit, furnace ect…

After I file my taxes in the next few weeks, it will be the second year of tax returns that I will have the rental duplex included on. So the banks should then be willing to count the rental income against the mortgage payment, which helps against ones income to debt ratio when wanting to buy another rental property.

So my plan now is to buy my second rental property in the next few months. If things continue to go well I will continue to buy rental properties until the bank tells me I am at my limit. Then I may work on paying off the mortgages or look into an umbrella loan from a credit union, and continue to buy more rentals.

I will say that the $820/month feels pretty good, the account I deposit it into each month has grown from $0 to about $9,000 in just 11months. not to mention the $25,000 in equity.