Kept Our First Home as a Rental

[Nicholas Baker Wood]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $108,500
Cash invested: $21,700

There are so many great memories about this house! My wife and I had relocated to Conway, Arkansas the year before, and were renting an average 2 bed 1 bath apartment in the area. We knew we didn't want to rent for long, so we aggressively saved and budgeted with discipline. This allowed us to have enough to put 20% down on a great 3 bed 2 bath home with a 2 car garage and fenced in yard near the University of Central Arkansas.

After living in the home for a little over a year, we purchased our current residence, and kept this home as a rental, which made this home our first rental/investment property. Living in the home for a year helped us feel comfortable that there weren't any major maintenance or safety concerns. We currently have the home on a 15 year fixed rate mortgage, and owe roughly $60,000 on it as of 12/1/2021. We rent this home out as a partially furnished home to college students for $1,400/month, and the home would be worth $150,000-$170,000 in today's market, so we have built roughly 6-figures of equity in this home in just a few years.

What made you interested in investing in this type of deal?

This was the first home that my wife and I purchased. When we bought it, we did not think that it would become a rental property; however, we wanted a home with some more space, and after a year, we bought our current home and rented out this one.

How did you find this deal and how did you negotiate it?

This deal was a for sale by owner. We wanted to put 20% down, and we only had enough to cover that down payment, and not the closing costs. We asked the sellers to pay our closing costs, and offered them above asking price, which resulted in us getting the deal!

How did you finance this deal?

Conventional loan, 15 yr. fixed rate. 20% down payment.

How did you add value to the deal?

We used to rent this house out for $1,200/mo; however, this past summer, we enhanced the parking area, and remodeled both bathrooms. We also had some friends moving out of the country, and we purchased their furniture for a low price, and the home is now a partially furnished rental. We get $1,400/mo in rent from it now.

What was the outcome?

The home now rents for $1,400/mo. Our monthly payment (on a 15 year note) is around $900/mo.

Lessons learned? Challenges?

This home requires flood insurance, which means that flood insurance premium eats into our cash flow; however, we have still been able to raise the rents to accommodate for that extra expense. This requirement for flood insurance may impact resale value; however, it is possible that, with a new survey, the home may no longer be in a flood zone.