The Story of my First Time

[Raj Gandhi]

@Padma Mody asked this question offline but maybe the story is good enough to broadcast on the greater forum.

When I began searching for rentals, I was looking at 3-4BR properties within my school district because I think the schools draw families to my area. I used MLS and a REA because I was President of the Soccer Club and knew an agent with a great personality.

All the potential subject properties were bank owned Twin Homes (half a duplex).  After a failed offer or two, I made an offer on a 4BR, 2 full baths, 2 garage, 1900 sq ft. unit.  The original offer was conventional financing.  The appraisal came back ineligible for loan because of a safety issue (lawn more threw a rock and put a hole in a window). The bank wouldn't allow anyone in the place to fix the "safety issue."

At that time, my budge was based on my personal savings and 401k loan (to myself).   I changed the offer to  $70k all cash and secured a $30k working loan from a family member.

I did much of the demo work and replaced the garage door opener.  That took me six weeks and it became apparent that I should hire the rest.  A general contractor replaced half the windows, part of an exterior wall & siding, the kitchen, all flooring, part of one bathroom, significant plumbing, significant electrical.  Everything interior and exterior was painted including the ceiling.  The furnace didn't pass inspection so I had that and a water softener installed.  All-in $120k (purchase, rehab, utilities, taxes and interest).

I got the unit rented and ~6 months after original purchase, started the refinance process (that's the min time to conventionally refi).  I met the appraiser there and had with me two pages of rehab expenses.  The interaction was intentionally conversational and I gradually all the improvements.  Eventually, he asked to see the two pages of rehab expenses I had and what I thought the property was worth.  Final result was an appraisal of $155k.  The loan was for about $120k (almost same as all-in cost).

Ultimately, it took about 9 months to acquire, rehab, rent and refi the property.  Now, I own a $1500/mo rental with $600/mo cash-flow and got back all the original capital so I could replicate the process.  In four years, that property has had three tenants but only 2 weeks of vacancy.  I've replaced the microwave, upgraded washer and dryer, replaced the last two original windows and added a deck.  The rent has been steady for three years.  Next year I'll try to raise the rent $50.