Primary residence turned to rental property (my first deal)

[Kevin Hildebrandt]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $185,000
Cash invested: $6,000

First home my wife and I bought was using FHA loan. We lived in the home for about 6 months before finding out we had to move to San Francisco and have continued to rent it out. Home was built in 1920s and is in great historic neighborhood of Phoenix but will soon need some major repairs.

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

It was a good opportunity to get into a desired neighborhood that we knew would have great rental potential.

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

MLS

How did you finance this deal?

As this was my wife's first home purchase, we were able to secure an FHA loan. Despite paying the PMI we are still cash flowing while building equity. With the growth in equity and decreased principal we are now in the process of refinancing into a lower interest rate and conventional mortgage to remove this added expense.

How did you add value to the deal?

I provided down payment and property management for my now wife. While she was shopping around trying to buy in Phoenix, which we predicted would grow considerably, she needed the extra cash to get into the home.

What was the outcome?

From this first deal we made almost 4 years ago, we hoped it would grow well for us but didn't think of how it fit into our overall plan of investing. Now, seeing the great equity that have built we are thinking of utilizing as a part of a HELOC or similar strategy to purchase another home.

Lessons learned? Challenges?

Spend a LONG time on tenant selection. We have had the same tenants in the home for 4 years now and are just now having to look for new tenants. Though this month of vacancy has been painful, we remind ourselves that it is the first time in 4 years. The biggest challenge is coming right now because our tenants wanted to move on and become home owners themselves, in hindsight we would have seen if they were interested in a lease option for our place.