First Deal for $5k!

[Jason Measures]

Hello BP!

At the end of January, I closed on my first rental property for $5,000 total purchase price. The seller's husband had died recently and already moved into another house, so the property was a major headache and she just wanted to get out. She originally wanted $25,000, but after a few negotiation sessions, I was able to get her to accept $5,000 because I agreed to cover all of her closing costs and take care of the entire process, leaving her with $5,000 in her pocket and removing the burden from her life. I had read often about motivated sellers, but experiencing it firsthand was surreal. For first-time investors still looking for motivated sellers and high-equity deals, they're out there! Nevertheless, let's get to the numbers.

Purchase Price: $5,000

Rehab, Closing, Other Fees: $40,000

All in at $45,000 through a private lender

Total Out-of-Pocket: $1,714 for the Origination Fee and Insurance

$950 Monthly Rent with Tenant moving in within the next few days

Monthly Cashflow (after PITI, Vacancy, Maintenance, etc.): $450

All-In Amount after Paying off Private Lender and Refi's Closing Costs: $49,000

Cashout Refi Loan in 30 days through Private Bank: $56,000

Cashout from Refi back in my pocket: $7,000

ARV: $85,000

Equity Capture (after Cashout Refi): $29,000

Cash-on-Cash ROI: Infinite

For all the first-time investors out there, stay persistent and fight on because the deals will come! Tell as many people as you can that you're investing in real estate because that is simply how this deal fell in my lap. While I had to work minimally to acquire it, it truly just fell in my lap and I cannot be credited much for that portion. Keep going and they will come. Also, there are many details left out here but I just wanted to share the overall details to encourage you first-timers out there to see that it can definitely happen for you, if you want it to. Bring on Number 2!

[Jason Measures]

@Jay Hinrichs Thanks for asking that question Jay, as that's a really good point to mention. In no way would I ever try to take advantage of a seller in that way, but when we first met at the property and she began telling me her story, she became choked up and tears streamed down her face because she had no idea how she was ever going to get out from under the weight of that property. I'm sure it was sentimental for her, as she and her husband had lived there for 30+ years, but she was bleeding from the property and it was in such a distressed situation that she had no idea how to sell it. She had already moved into another home and was continuing to pay out-of-pocket on this property. She had tried to sell it but nobody could help her, so when I addressed the situation, I simply tried to find a solution that would help her out in the best way possible, while making it a profitable deal for me as well. The seller and I actually have a good relationship and she asked if she could see the property when it was completed rehabbed. When we went to see the newly renovated property, she was proud to see it taken care of so well and that it is now an excellent home for someone else. So, all in all, while it is an excellent opportunity for me, I do believe I was able to help her in this way, although I understand I am quite biased from this side of the deal.

@Sharon Tzib This is a property in Arlington near the Cowboys Stadium and Ballpark in Arlington. My private lender is a friend of a friend, who is a RE investor as well, therefore he did most of the background work on his own, as any good lender would. I'm on a 6-month short term loan with a 3% origination fee, which I paid out-of-pocket at closing, with no payments due until the end of the 6-month loan, which I will then pay him the entirety of the loan plus interest. I considered doing a simple rate/term refi after the rehab was done, but with the ability to actually pull cash out of the deal on a cash out refi, making my cash-on-cash ROI an infinite amount, I decided to go this route.