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Updated almost 6 years ago, 01/21/2019
This was my first deal
Investment Info:
Single-family residence buy & hold investment.
Purchase price: $52,600
Cash invested: $10,899
My first deal, a small buy and hold in south Kansas City. Cash on cash 20.8%.
What made you interested in investing in this type of deal?
First deal wanted to get started only knew about buy and hold. I wanted to start getting cash flow.
How did you find this deal and how did you negotiate it?
Found a agent and found a house off of Trulia. My agent negotiated it.
How did you finance this deal?
20% down bank funding 5% interest.
How did you add value to the deal?
I really didn't, no repairs needed and it had a tenant.
What was the outcome?
Have had it for a year really no problems.
Lessons learned? Challenges?
This was a good straight forward deal, It could be flowing a bit more cashflow however I bought it with a good tenant that hasn't given me any problems and I got in the game.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
I worked with Emanuel Blando and Breven Woydziak for my agents in Kansas City. They both own rentals and have helped me from finding tax people to getting the cheapest good guy to fix a roof.
@Walter Anderson, nice pickup! Looks like it has some good curb appeal. Hard to go wrong at $50K if it's in a decent area.
Sounds like a great deal! What do you plan to do next?
Andres- 1.My cash flow from this deal is $182.22 a month setting aside 4% vacancy 7% for repairs 7% for cap x and 8% for property management. Rent is at 731 which is a little low for the area. I bought the house with a tenant and contract so I have just kept the terms. The contract is up at end of the year and I have the option of raising the rent (although I need to talk to property management about raising rent with section 8 tenants, and decide if I want to do that. I rent as well and I don’t want to be a harsh landlord. The tenant is section 8 but I haven’t had any problems.
Owen- 2. Property is in decent area it is close to a new Cerner building (more jobs to area, the area is transitioning at least I think.
Lee Ripma- 3. After this deal I did another buy and hold around same area a bit further south. I posted that somewhere. I am on my third buy and hold in south Kansas City area. I want to try the BRRR method next year.
This should be link to my second deal.
3-5% is what Section 8 will allow you to raise the rent per year. You don‘t want to miss too many years without an increase or you‘ll be trying to catch up with inflation. Also, because the tenant only pays a portion it doesn‘t affect them much. No need to be predatory but do stay at or above market rent. Congrats on your deals! Repetition will get you to financial freedom. It can be exhausting but keep doing this again and again and again.
Thanks, Jonathan Roper, for the advice on Section 8 will get in touch with my property management.
@Walter Anderson what a neat and tidy first deal, well done.
Big congrats, Walter! You're my inspiration. I'm in Lawrence, newbie to RE, binge-reading/webinar-watching for now but want to start with a cashflow rental in KC soon. Thanks for posting the details-it's really helpful!
Thanks @Suzan Hampton, some other info I forgot to mention that I just didn’t know going into my first deal (I didn’t know about bigger pockets then).
1. On rental properties for bank loans (conventional loans) you can’t use gifted money (aka you have to show that you have earned all of your down payment). The way around this is if you get a big gift from a relative or anyone wait like more than 90 days or more before you try to get a loan. I believe most banks only go back 3 months and look at all money that you have made in those months. If Money is there before the 3 months they usually don’t look at how you obtained those founds. I had 10k of gifted money at this time I couldn’t use on first deal ( I received it like a month and a half before the deal). I was still ok because I came to the deal with 20 something k but half of my founds I couldn’t use for deal.
2. You need proof of reserves for rental properties (at least for my conventional loan). For this deal I needed 1500 of reserves and the money couldn’t be gifted. So I had somewhat of a problem in that I could only use about 10k of my 20k and it was a bit tight to come up with the 1500 reserve non gifted money to go with the non gifted down payment. Everything worked out and my lender for this deal David Brown at Cornerstone Mortage was amazing and went the extra mile to get this deal done. However it is good to know that you can’t use gifted money on a conventional loan.
Also thanks! @Andrew Neal
Congrats @Walter Anderson on this first deal.
You learned a little and took a lot of action and that's how you learn a lot.
To do BRRRR, I suggest you seek out/learn how to fix properties. In this way, you are able to add value. Also, if you don't have the cash to buy a property out right, you need a good hard money lender as part of your team. HMLs lend on properties that need repairs/not liveable. You can't get conventional financing on properties that need a lot of work.
Buy using hard money (and some downpayment)
Renovate the property to add/increase value
Rent to good tenants with the help of a good property manager
Refinance out of hard money into conventional loan
Repeat because now you get your downpayment back (and hopefully a bit more)
@Walter Anderson, more great info, thank you! So helpful to know what not to do up front with the financing before trying something and being told 'no', especially getting into the very first investment. Continued success to you, my friend!
@Michael Ealy I have found a good private lender in KC and have a trusted contact that will do the rehab ( He and his team has done many rehabs for BRRRS and flips). It is just a process finding deals and analyzing them and also somewhat of fear of the unknown.
@Walter Anderson Great stuff! When you ran your numbers at 4% vacancy, 7% maintenance and 7% capex did you get this from other investors around the area? This is something that I have struggled with and I fear I am being too conservative in my analyses.
I also get that it can be a personal comfortability thing, but I have been going a few points higher on all of those categories. You might not have a long enough time frame with your rentals yet, but I'd be interested to see if those reserves cover all of the vacancy/maintenance/capex.
I use 4% vacancy, 7% for maintenance and capex because that is what Brandon Turner uses on his bigger pocket webinars, or at least the ones that I saw. I do 8% for property management because that is what my property management charges. I need at least 200 cash flow after subtracting these things that could go wrong and also the monthly mortgage (this is what he uses as well). For practical purposes I have more than a 5k reserve for each property I own. I had a bad December and payed about 2k that month, it is a good idea to have reserves as well.