My First Investment Property St Louis

[Michael Shear]

My wife and I purchased a four unit apartment in STL. Purchase price $85000. The market rent in the area is $500, but we knew that we could place value in the apartments by cleaning up, installing electric appliances, new cabinets, and some tile work. I, myself, only did the appliance work. The rest was done by a handy man. Due to FHA loan we are only able to rent out 3 units. With some creative marketing and being what I feel is great landlords we have rented out 2 units for $575/month. Only one more to go! This being our first house we assumed it would be a little slow, but we have put in four full 40 hour weeks (after full time work at my real job) into cleaning, painting, installing a new door, bringing in new appliances, and many other things. Believe it or not we have found out a lot about ourselves and our ability to learn new things and do them well. Unfortunately, we forgot to take the time to take before and after pictures, but we will attach some current pictures. Not only did this teach us new things about ourselves, but it also stretched our marriage in the time that we were actually at home. Mostly working 8am-11pm everyday for a month straight (including weekends) was hard, and I now know how some people feel that have been doing this type of work for their whole lives. Next stop is to refinance and repeat, but this time we will be looking for a real house hack Du-plex that we will live in and rent out the other. This is my first step to financial freedom.

Now I am going to go into everybody’s favorite part, the finances.

The return on investment must be worth it. So for instance I will not take anything that is below a 15% yearly return. with FHA loans it makes every thing look good because the cash to get in is super low. So what I did is look at what the profit after mortgage payments. My mortgage + other expenses (Ins, PMI, HOA, taxes, water + trash) is roughly $825 a month. Once fully rented out (3 units at $575/mo = $1725) Profit = $900 Return = 109%. Now this return assumes I don't have any monthly expenses. Don't be fooled because you will. Bigger pockets suggest a 50% rule which means that you will use 50% of your profits towards overhead expenses (vacancy, maintenance, lawncare, etc.) Since I have already put a lot of work towards maintenance, I am saving 25% of the profit to use towards overhead and put it into a savings so when something happens, the money is ready.

25% of $900 = $225 (Saved towards overhead per month.)
75% of $900 = $675 (MY POCKET!)
$675/$825 = 75% Return (Well above what I had first calculated)
Obviously, I cannot wait till I can get it refinanced and rented out fully.

With this being said. I am using $500 a month to save towards my next home purchase and I will continue to do this till I have my goal of 4 properties. At this point I will be resetting my goals and looking at something different since most of my returns are coming from sweat equity, and I don’t want to turn this business into another job. I want to run a business instead of running myself into the ground.

[Billie Miller]

Good work! This is great. 

If you guys can survive rehabbing houses yourselves, there's not much your marriage can't survive! It's tough for sure.

You're very smart to start thinking now about how you can make this into a business instead of a job. Find ways to delegate and outsource so you can scale quickly!

You won't regret house hacking either. It's such a good way to get rentals and your living situation taken care of at the same time. Not to mention the financial benefits while you're living there and after you move out.