New to forum! Working on first unit to earn a positive cash flow

[Kuriakos Mellos]

Hi all!

First off, I have to say I am so excited that I stumbled on to this forum.  Glad to see there are so many other people as passionate and willing to learn from eachother.  My story at short is that I have a career that I am fortunate enough to love and have been able to put some money aside for projects.    In the last 18 months, I have purchased three condos in which I have:

A ) moved into one (instead of rent) did some work in it, refinanced it and get it appraised already at +13,000 more than I bought it just 6 months.

B) Bought a unit across the hall, with the intention of eventually activating it for rental but holding it with a family member for now.

C) Bought a unit for my mom - only get one mother ;-)

None of these are 'making me money' just yet, but figured for the price of owning two units and living in one of them - it was almost as much as the rent I had on a two bedroom down the street.  While not building a cash flow yet from these - I feel like the loan being paid down each month and getting some natural growth in value over time will help - or at least I hope for these two.

I made a ton of mistakes during these first purchases (and this is coming from someone that knew NOTHING about real estate or had any friends/family who gave me advice.)  But the thing is that if someone like me who knew not even on how to apply for a mortgage right was able to figure it out, the tools and support are increasingly there to get where you need to go. I think the underlying line here is HUSTLE is what will get you what you want, not only here with realestate, but in many aspects of life.

Just some of the mistakes I made, and glad to share stories directly with others , which were a good learning curve were:

Not shopping around for rates once I got preapproved,  I was dumb and accepted my first offer and did it with all 3 units.  Looking back, I could of saved thousands of dollars upfront and during the life of the loan.

Being told I could not refinance from a current lender and waiting months to do so, when all I had to do was ask another bank.

Being lied to by a seller's agent that a unit could be a short term rental property several times in writing and text only to find after inspections and deep diving by my lawyers that there was an addednum added to the condo docs which striclty prohibited - completely sunk costs there and pulled out of that deal. 

Not getting certifcates of insurance from contractors (delays, stress, had to hire more workers to complete jobs.)

Pushing on discounts where I could (inspections / laywer fees etc)  Never hurts to ask! $50.00 here and $100.00 there do add up.

Doing a better job of keeping receipts for work done - I have transitioned and use cards now so I can easily track stuff.

I am hoping will help me now that I am moving forward to a second phase of investing and to being making some cash net flow positive units occur - and this is where I need some guidance/help - motivation/support - feedback? Who knows - open to ideas.  This is where my questions begin:

I am looking at finding a property or two that can be used for MINIMAL cash flow in the first year - obviously both come with a little risk but wanting to put as little down as possible - to have some in reserves if it takes a while to build up or get rent coming in: for your knowledge these units are in the greater Chicago land area.

Option 1 - 1 bed 1 bath condo - Investment Property - Listed at 170,000 good shape - needs no work and could be ready for rent right away - currently empty - looking at about $34 down plus closing costs (another 5 or 6K?) : monthly costs are just over $1,000 - thinking I could turn this into a rental and charge at least $1500 for it?  

Cons: NO idea how to find good renters and what kind of paper work is needed but have a friend who helps find units for people: might be vacant for a little before being rented.

Option 2: 3 flat out in the burbs - listed currently at $610 - FHA eligible - put about $31,000 down - get 3 units - have to live in one technically because of the rules of the FHA but two are currently rented out bringing in about 3000 a month. This unit would not be able to go cash positive for a while, but I would be getting 3 units for the same amount I put down for Option 1.

Ideas? Did people start out with single units first before trying multi units?  Appreciate you all from advance!  Thanks

[Joseph Konney]

Hi @Kuriakos Mellos - Welcome to BP and thanks for sharing some lessons learned!

Regarding finding good tenants, you can use a real estate agent or post online to websites like Craigslist and Zillow. Physical "for rent" signs may help (if allowed by the HOA) too. Also, if you are in Cook County, make sure to check out my post here about processing applications: https://www.biggerpockets.com/...

I'd pick option three: hold out for a better deal! I strongly advise against buying a property that will not cash flow after immediately planned improvements. I also don't like HOAs. You never know what they will end up voting to mess up your master plan. I had a townhouse in an HOA and they voted (and passed) to have rentals limited to a maximum of five years. Then it has to be owner occupied. Then you have to get into a queue to be rented again as only so many rentals were allowed at any given time. Ended up selling it as it wasn't feasible as an investment.

I strongly recommend the multifamily housing investment route for many reasons, but you may need to put more down (wait) or choose a less pricey market. I started out renting rooms, then rented my formally occupied SFR, then sold that to invest in multifamily and only multifamily since.