[Calc Review] This was my 1st Investment - Did I hit a home run?

Question

What do you think?

So I am fairly new to BP.  I watched my first webinar last week and have been listening to some podcasts.  I am now wondering what you pros think out there.  This is was my 1st rental hold purchase (I now have 6 - all similar) and am wondering if it was a home run, a base hit, or if I struck out and should return to the batting cages?

This one was purchased from an older landlord looking to liquidate some properties and I gained a good private financing relationship out of the deal to boot.  The property could use some updating but is in relatively good shape all around, and came with a 14 year long tenant on a yearly lease.  She's older and takes good care of the property, as well as polices the unit I bought next door for me.  It's professionally managed and I feel like I am ready to scale up and buy a few more.

I'd love to hear your thoughts!   Would you buy something like this?  Or, even a package of them?

side note: I've been selling real estate for 13 years now and finally stepped out of fear and pulled the trigger on this one (and another just like it) in January of 2017.

View report

*This link comes directly from our calculators,                  based on information input by the member who posted.

Dennis M. · Answer

850 rent on 42k house .. I’d say you did just fine on this one . Not amazing but certainly a good return

Jake Roland · Answer

@Wayne Smith I don't see any budget for repairs on purchase, which is fine if there is an existing paying tenant there and they are happy. The main thing I don't see is any monthly budget for repairs or CapEx on your report. Personally I would be saving around 10% for repairs and 10% for CapEx every month on this house. Don't want any surprises and have to pay for a new water heater or fix a leak out of pocket!

Jaysen Medhurst · Answer

@Wayne Smith, I did a quick search. First Financial CU offers 4.5% for 15 years on an investment property. This would bump up your payment by ~$10/month, but pay off the property 10 years sooner.

I'm sure you can find a bunch of other products with a little bit of effort.

Wayne Smith · Answer

Thanks, Jake, and everyone for your thoughts and advice.  I am going to start setting aside money for the CapEx and Repairs.  I make most of my income selling properties, and had just planned on using the Net Rental Income to accelerate the loan payoff.  I'll slow that down and start reallocating those monthly net proceeds.  The properties are all in relatively good shape and the minor issues we've had the property manager simply took out of my monthly owner disbursement.  Either way, there are some maintenance upgrades I'd like to add in the future, like central air, which will help keep the tenants happy, increase potential rental income, as well as overall value.  If there's anything else I am missing, let me know, I'm all ears.  Otherwise, time to go shop for some money, now that I have a list of properties like this that are off market and for sale.  Any advice on that would be greatly appreciated as well :)

Jaysen Medhurst · Answer

@Wayne Smith, with the caveats of what others have noted, I think this is a good investment. One other thing to look at is your mortgage. Rate looks pretty high to me. I think you can do better than 7.5%. Perhaps worth packaging with other properties and put them all under a new loan at a lower rate.

Kevin S. · Answer

@Wayne Smith like others have said, definitely need to account for CapX and R&M, but I noticed you are also not accounting for Vacancy. I know your tenant has been there for 14 years, but you still want to set aside a portion of your profits for the day when she vacates. I do 10% CapX, 5% R&M and 8% Vacancy (to give you about one month of rent per year 1/12=8.33%). If you add an additionall 23% of expenses to your report, you're still netting $198.40/month in cash flow, and you'll have recouped your initial investment of $3,090 in 15.6 months, so I'd say it's a good pick. Congrats!

Wayne Smith · Answer

Thanks, Kevin.  I think this is something I'm going to consider as well, moving forward.  It's rare in this price point locally, for anything to sit vacant for more than a month, and it's often re-rented before the tenant moves out (when we can start marketing the property with prior tenant's notice to vacate).  That said, if there are repairs that need to be made, or should I have a surprise and have to carry it for a month or so, this would be nice to have equated for.  Thanks for your input.

Wayne Smith · Answer

Thanks, Jaysen.  I am getting ready to start shopping for a new loan.  I went to a local lender, who typically will finance investment properties, and they said they wanted to see at least a year's worth of track record with me owning them.  Not sure if that's normal and the numbers didn't seem terrible with what I landed.  Now that interest rates have gotten even better since then, you are spot on!  I need to refinance.  If you have any recommendations, I would love to explore outside my local lending options, please share.  Thanks again.

Brandon Burgoyne · Answer

Agree with above, besides repairs and capex, I think you got yourself a good deal.  Congrats!

Frank Geiger · Answer

Why didn't you calculate any repairs or capex? You're still looking at about $100-$200 cash flow on your initial investment of $3,000. As long as there isn't alot of deferred maintenance, it seems like a good return.

[Calc Review] This was my 1st Investment - Did I hit a home run?

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