I did it! I bought my first investment property! :D

[Julia Rockwell]

Investment Info:

Single-family residence buy & hold investment in Durham.

Purchase price: $185,000
Cash invested: $3,000

This is a buy & hold "house hack" that I will be renting to students/AirBnB guests. On paper its not the best deal since it doesn't meet the 2% rule (shakes out to around 0.8%) but, it's worth it to me because it's a lovely safe location walkable to downtown. Location also is as important to me as cashflow, since I'm looking at this from a hospitality perspective and it's walking distance to a well attended school/amenities. The most comparable comp sold for $262k.

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

My aim was to purchase something that would cash flow, while also appreciate long term (or at least sell for its' purchase price) and allow me to live rent free so I can allocate my savings from living rent-free towards saving for a second investment property. While not a traditional passive cash-flowing investment, I am happy with this because the mortgage is lower than what I currently pay for rent and it is a property that I will always be happy to own. If I want to make it passive I can.

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

I bought it off MLS through a wholesaler and while I might've overpaid, I'm ok with that because there's no way I would be able to afford this if I shopped on MLS. It was advertised through my local REI club and was a pre-foreclosure with cosmetic repairs. I did not negotiate and in retrospect wish I had negotiated the wholesaler's finders fee. Lesson learned! I ended up with this instead of a flipper because the profit margin is very slim and it really only makes sense if you live in it.

How did you finance this deal?

Conventional financing, because although it was a pre-foreclosure and a bit of a risk if it did not appraise near it's purchase price, I was able to get a mortgage for it and everything worked out ok. Very lucky that it appraised higher than the purchase price! I still need to account for the bathroom/kitchen remodel costs, and will update the investment amount once I have completed these tasks and have an idea of the true numbers. I plan on doing as much of the remodeling myself as possible.

How did you add value to the deal?

I am planning on gutting and rehabbing the bathroom/kitchen, grounding the electricity, new gutters, fixing the water drainage, landscaping and decorating it to make it look cute. I will be repairing the subfloor, wall cracks, adding a deck etc. I will also be experimenting with permaculture/urban meadows and various ways to completely automate the AirBnB system, and passively cultivating fruits/vegetables on autopilot mode so as the mortgage decreases the amount of free food produced increases.

What was the outcome?

TBD but fingers crossed! At the very least I should net like $40k if I decide to sell it (which I wouldn't since it cash flows) and the monthly cashflow is based on projections/current market analysis and is very conservative.

Lessons learned? Challenges?

I should have negotiated the wholesaler's profit down since few people were interested in this property. I don't regret it but it's a valuable lesson I learned. I also probably won't be using a realtor to help me find my second investment property (no offense to my realtor).

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

I recommend John McClancy as a structural engineer.