My first rental property

[Brandon Bartley]

Hello everyone. I recently closed on my first rental property, and after a long (nearly 6 month) process I am excited to finally see some returns from this investment. 

I originally found this 4-bedroom SFH listed on the MLS for $75,000 and ran the numbers for it as a student rental and it seemed like a decent investment. The other aspect of this property that intrigued me was a 960 sq ft 3-bay garage attached to the back of the house. I saw this as a potential additional 2-3 bed apartment, but the house was located in an R-1 zone which does not allow multi-family properties.

After looking at the zoning map, I noticed that the property was surrounded on three sides by C-2 zoned properties, which allows multi-family dwellings. This led me to put in a purchase offer of $72,500 contingent on re-zoning of the property from R-1 to C-2, which the seller agreed to.

The re-zoning process took much longer than I had originally anticipated. After many deliberations between the planning board and the village board, the re-zoning was accepted 4 months after the initial purchase offer.

Now that the re-zoning was out of the way and the deal moved forward, I began looking for potential tenants as the closing date approached. After reaching out to a few friends that were still in school locally, within about 10 minutes I had an interested group of 4 guys reach out to me interested in scheduling a showing. After seeing the house later that week, they immediately loved it and agreed to sign at $2,250 per person per semester with all utilities (except water&sewer) paid by the tenants. It was a major relief to have this house fully rented for the upcoming year before I had even closed on the house!

Currently, I am doing minor renovations including new paint and flooring in all of the bedrooms and the living room, as well as a new fence along the property line.

I was able to finance the property through an 80%, 30-year conventional mortgage and a 5-year $10,000 loan at 6% from a relative. Once I have the second apartment renovated I plan to refinance to a 15 year fixed mortgage. This left only about $7,600 out of pocket to close, not including expected repair cost.

Here are some of the numbers on the property for the upcoming year:

Annual gross rent: $2,250 pp/semester x 2 semesters x 4 people = $18,000

Bank mortgage expense (30 year, 4.25%): $3,424

Loan expense to relative (5 year, 6%): $2,320

Property taxes: $3,600

Insurance: $792

Water, Sewer: Appx. $2,000

NOI: $5,864

Estimated reno costs: $2,500

COC: $5,864/ ($7,600 + $2,500) = 58.06%

After such a long process it feels great to have a property that I am confident will cash flow well in the years to come and has potential to make even more once the second apartment has been completed!