My Second Deal + Going to Try Property Management

[Brandon Heimsoth]

Just last month, I purchased 2 single family rentals.  This was my second deal.  My first was in 2016 for a turnkey 4-plex with a property manager in place.  This time, I decided to go the single family home route and will be managing them myself as they are a little closer to home.

This was an off-market deal made through networking. As much as I hate hearing all the networking guidance from Brandon and David (I'm an introvert), you have to listen. Just mentioning that I had a rental to a colleague got me referred to commercial banker. That commercial banker convinced me to try property management. I originally wanted nothing to do with tenants. But, he owned and managed 10 properties himself and made it sound so easy. I started to look on the MLS and auction sites but after a couple months, I received a call from the banker saying he had a deal from a guy that wanted out of the landlord business. He lived about an hour away and had some family medical issues going on.

Where are the properties?  North St. Louis County.  One 3 bedroom 1.5 bath and the other 3 bedroom 2 bath. I used to live in that area and they're 15 minutes away so that makes management a little easier.

We settled on $70k per property. Both properties already had tenants. Rent is $920 and $950. Both tenants are Section 8 and 100% is paid by HUD. Looking at comps, I feel that if I put $10k (doing work myself) in each, they would easily appraise for $100k. There are rehabbed homes going for $120k in the area but I'm being conservative in my estimate as they are on a busier road. If rehabbed and in open market (not Section 8), rent would be $1200-1300. But, I'll probably stick with HUD for now, especially with the Coronavirus going on. The previous owner had not raised rent for 4 years so I will inch that up as their leases expire. During due diligence phase, I found out that landlord filled out HUD paperwork wrong and stated that tenant was paying sewer but he actually was (because it is required to be in owners name). That being said, I should easily be able to fix that during renewal time and get the extra income from HUD.

As far as funding, I stuck with the commercial lender that brought me the deal.  5 year term with 20 year amortization at 4.95%.  I was able to close in 15 days and it was so much easier than a conventional loan.  And, I was able to bulk both of them in the same loan.

I'm still in the honeymoon phase and only one minor maintenance request.  But, I've just delegated that to the same handyman that had been servicing the unit with the previous landlord.  We'll see how this goes!

[Joseph Cacciapaglia]

"go network" can certainly be tough advice to hear for us introverts. I find the easiest way for me is to connect with people online, and then set up one on one meetings or phone calls. There is no replacement for networking, but you don't have to go the traditional route. I haven't been to a networking event in a decade, but have a much stronger network today than I did back when I was active in many groups. It's just a matter of figuring out what works for you.