What was the price, rent, and NOI of your first property?

Question

Hello BP,

I have a few questions about your first ever rental property;

How much did you buy it for?

What did you price the rent at?

What was the breakdown of the expenses?

What was the Cash on Cash return,or ROI, of your investment?

Thanks for the info, I'd appreciate anything you are willing to share.

Jay Hinrichs · Answer

cant recall my first one but I would buy lots at tax sale for 500 to 2k each and sell them for 3 to 10k each..

this was the later half of the 70s and early 80s.. then I moved into buying bigger acreages usually for 10 to 50k each and selling them for 2X to 5X or more than what I paid.

then I found timber and well those deals were 100k to 2 million or so.. log timber sell land.. this was very good.

I did not really buy rentals till mid 2000s in the go zone for tax bene's then I bought 350  lower class properties coming out of the recession and sold them 5 years ago for a modest profit little less than 1 million but was so glad to be rid of them.

Nathan Gesner · Answer

Here's an example of how "forgiving" real estate investing can be.

My first investment was in 2004 and I bought it sight unseen. My father-in-law was a REALTOR that said it was a "great investment" but the truth is, he was a mediocre REALTOR and didn't know anything about smart investments. I didn't know that at the time and just bought the property based on his advice.

It was a townhome. One month after buying it, the sewer backed up but it was a simple fix. The next month, it happened again and we had to replace the entire sewer line and cut down a tree ($6,000 total). The next month, I received a letter from the HOA telling me to pay a $3,700 special assessment for the roof and siding. My father-in-law had failed to tell me about this despite several warnings.

Long story short, I paid $6,000 down and then another $10,000 in repairs and HOA assessments in the first four months. After that, the tenant's rent paid for everything and I never put another dime into the property. I sold it eight years later for a $70,000 profit.

This investment is proof that even an idiot can make money in real estate investing if you just hold on long enough.

Jason L. · Answer

Wouldn't say I have rules per se. To be honest, I kind of fell a**-backwards into making that one work as well as it did considering how much went wrong. I probably won't find numbers like that one again, so if I forced myself to anchor all future deals to that one then I'd probably be sitting out way too long. If it sounds good to you, then I wouldn't get too hung up on "rules".

Jason L. · Answer

3/1 SFH bought in 2015...

Purchase Price: $66k (privately financed through a relative)

Renovations: $23k (I paid this myself. It was at least $10k more than what I had budgeted. Chalk that up to having no idea what you are doing)

Initial Rent: $1125

Insurance: $1675 (Lol. Don't ever ask your parents how to buy insurance for an investment property because they'll panic and want you to get a bunch of stuff you don't need. I've gotten this number down 4 years straight, and it's now about $700)

Taxes: $850 (it's up to $1250 now).

Maintenance: ~$700 (like I said, I spent $23k that first year that I bought it, but I have averaged $700/year in the 4 years since. It will probably need a new HVAC soon though)Management: $0 (I placed the tenant myself back when I was local, but I have moved 200 miles away since. Lucky the tenant has stayed because I plan to outsource the management if he ever leaves. 10% + fees is pretty standard for this area).

Vacancy: $0 (Technically it took me 3 months to get a tenant in from the day I bought it, but he's now in year 5 of his tenancy. Pretty lucky for the reason I mentioned above).

From a budget perspective, I still budget 12% for PM and 8% for vacancy. So from a pro forma perspective:

Gross Rents: $13,500

Gross Rents (net of Vacancy Budget): $12,420

Actual Expenses: -$3,225

Budgeted PM (12%): -$1,490

Total Budgeted Expenses: -$4,715

NOI = $7,705

Financing: -$2640

CoC: 5k/23k = 22%

Note: I've taken all the cash flow (and some other funds) to pay back the principal on the loan from my relative. So technically my CoC% has dramatically gone down since. However, I only owe them $10k from the original $66k, and the house is worth $135k from the original $89k all in price.

Matt M. · Answer

@Yazan Ayyash

First property 2015 Cash

Paid $23,100 for house, $14,000 rehab

Rented $995 house, $125 garage

Today- $1075 house, $125 garage

So basically $1200/month on $37k investment

Nathan Gesner · Answer

Exactly. I relied on my father-in-law and followed his advice. He said an inspection was unnecessary because he used to own this unit years before. Of course, that's bad advice.

He also failed to tell me about the pending HOA assessment, which is his fiduciary obligation. If it were another agent, I would have sued them for failing to disclose that to me and he would have probably had to pay the cost, or at least a large portion of it.

My mistake was relying on a relative but I was naive and assumed he was an expert since he had 15 years in the business. Lesson learned.

Corey Hawkinson · Answer

@Yazan Ayyash $49k purchase, rented at $700 at that time. Wish I bought way more back then. But now I’m smarter (hopefully - my wife might debate that) and ready to make better decisions.

James E. · Answer

130k condo / 1,600/mo rent

Yazan Ayyash · Answer

Hey Jason,

Thanks for the reply, its really well put. Do you usually specify a minimum ROI that a prospect deal needs to have to purchase it? Or do you have other numbers-related criteria. Thanks!