1st time investor + 2 properties + 2 months = 5....

[Kyle H.]

5 units, that is!

I am writing to share my story in hopes of giving other first time investors the courage to take the plunge into buying their first property!  It is definitely nerve-wracking, but patience and guts are the keys to success.  Here are my FIRST 2 deals, both which I had under contract at the same time.

DEAL #1 - 4 family property in Cincinnati. I found this deal on the MLS website - it was up for sale for $83k. Due to the fairly low asking price, I was immediately intrigued. I logged onto the county website and saw that this house's ARV was $115k and last sold for about that price range. I got with my realtor, and we discovered this had also been on the market for 6.5 months. This raised a few red flags, of course, but I just had to go see it. We did a walk-through, and the condition of the property is in great shape. Strong foundation, solid roof, older boiler, newer electric...but do-able. My realtor and I actually met up with the property manager. When we were onsite, he let us know that he actually lived in 1 of the 4 units, but for about a 30% discount in rent. He and I talked for about 2 hours, and here is what I was able to uncover:

1) Unit 1's tenant - living there for 1.5 years.

2) Unit 2's tenant (the property manager) - living there 8 years.

3) Unit 3's tenant - living there 20 years.

4) Unit 4's tenant - living there 30 years.

5) The property manager's uncle lives in California, owns the building, and has a real estate portfolio in the millions.  The property manager's mother (79 years old) is still doing the building finances and is getting tired of it.

What I was able to gather was this: 3 out of 4 tenants are long-term tenants, the property has been on the market for a LONG time, and this measly 80k building was worth nothing to a multi-millionaire in California who is just wanting to get rid of his property.

As a result, I offered $45k just to see if it would be entertained.  He ended up counter-offering me, and we met in the middle at $64.5k.  Gross rents = $1600/month (low income area, but I am not afraid of that).  Gross expenses (including reserves and vacancy) = $1150/month.  Cash flow = $450/month.  It gets even better because I will be able to reduce the taxes significantly in January.  The taxed value will drop from 115k to around 65k, thus increasing my cash flow to about $550/month, or $6600/year.  I only had to put 16k down, so my cash on cash return is a little over 40%.

DEAL #2 - SFH. Not as spectacular, bought for $120k with 5% down, and I am living in it for the next 12 months. Then I will flip it to rental and will receive about $250/month in cash flow.

I am more excited about DEAL #1 than #2, but I figured I would get them out there!  If you are looking to take the plunge, stay patient, have some courage, and don't be afraid to jump when the numbers work.  The best way to learn is to just dive in!  My patience paid off and I landed 5 units in 2 months...now I am on the hunt for the next one! :)

[Arlan Potter]

excellent. You have it figured out.

One thing you might learn though. It is about tax value. On our county website I can sometimes see what the house sold for last, and I can see the assessed value. But neither of these is ever relevant to me in my purchase decision. 

Also what may surprise you but your tax assessment might actually go up. Here is how tax authority's work. The assessed value slowly declines over the years until an event like a sale occurs. Then the tax man gets an opportunity to raise it back to an amount closer to actual value. So your taxes may increase.

I have complained about taxes increasing on houses that I paid a real low price and the first thing the assessor asks is what does the property rent for. When I tell him he does a calculation of value based on the income approach and I don't have an argument. It make no real difference what I paid, it is what is it worth, that is how big brother works.

Anyway, congrats.