Second Investment Property

[Doug Spence]

Investment Info:

Single-family residence buy & hold investment in Milwaukee.

Purchase price: $89,000
Cash invested: $33,422

I'm active duty Navy and this is my second rental property. I purchased it from Stu Grazier's company as a turnkey. He was a guest on BP Money. I'm about to close on my second property with Stu which will be my third total property. I'm obsessed now!

What made you interested in investing in this type of deal?

I was drawn to turnkey because the numbers make sense, and I work a full time job so it would be pretty difficult to build a team in another market. I live in San Diego so there aren't as many opportunities here in my price range.

How did you find this deal and how did you negotiate it?

I found the deal through Stu Grazier, a fellow BP member, active duty Navy guy, and real estate addict.

How did you finance this deal?

Conventional loan at 20%

Lessons learned? Challenges?

I learned about what happens when the appraisal comes back at 22k lower than expected! I had to put up more capital, but got a sweet deal on the overall price.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes! Stu Grazier and the rest of the Storehouse team.

[Doug Spence]

Originally posted by @Dan H.:

I hope you did not pay above appraised price for an investment property.  Investors should purchase below retail (appraised) price.  Definitely not above retail price.

If an appraisal comes in below the negotiated price then the price should be lowered to appraised price as the appraised price is the retail price.  The appraisal sets the retail based on recently sold comps.  The appraisal is a supposedly an unbiased analysis of the value (versus the seller and buyer both have different biases).

This is not to indicate that you cannot make this work as an investment but you are starting your investment with less equity than your cost.  Not the best start.

Good luck

Dan, thanks for the feedback. The property appraised for less than anticipated because the basement was converted into a third bedroom, but the appraiser would not recognize this (not sure why), so it was appraised as a 2/1 instead of a 3/1. The property still rents as a 3/1 though. I could have backed out once the appraisal came back so low, but the reason I didn't is because the numbers still made sense for me. Also, the turnkey company was already going to make significantly less than anticipated, and I wanted them to still make some money off the deal, so we agreed to split the difference (Chris Voss would not approve). The original purchase agreement was for 100k, it appraised for 78k, and I paid 89k for the property. It seemed like a win win: I get the property for 11k less than anticipated, I still get $400/month in cash flow and a 14% ROI based on my analysis. These numbers may seem laughable to you, but its my second property and I'm satisfied with my purchase.

"Not a great start" according to you Dan, but I disagree. Sometimes you have to think about the folks in your network as well. I could have been more aggressive and insisted that I pay no more than the appraisal, but I wanted to look out for other investors as well, as I plan to buy more properties from them.