What was your first deal? Did you Cash flow?

Investor · Austin, TX · Member since 2018 · 44 posts · 22 votes

Hello All,

Curious to hear everyone’s story about their first investment property! Was it a good deal? Did you cashflow right away? What did you learn?

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George Pauley

Chandler, AZ · Member since 2017 · 174 posts · 269 votes

Oh God, my first investment? I'm embarrassed to talk about it.

Brand new spec home. 4k sq ft. $450k. Oh and I closed on it early January 2008. Needed $2700/mo to break even. I was lucky to get $1800. Had to ride that, almost instantly, underwater property for 6 years before I was able to dump it for $420k. I was SO happy to see it go.

That said, I learned a lot. Today I have 15 properties, all cash-flowing around $200/mo each. And I wouldn't be where I am if I hadn't bought that first turd of a property. I like to tell new investors that the are going to make mistakes ($$$), but they can't let that keep them from taking the plunge and investing in that first property. The mistakes, and the lessons learned, are part of the process.

Key lessons from first property...
1. Medium size 3/2's rent much better than giant 4k sf mini-mansions
2. The IRS does not allow non-real estate professionals to deduct rental losses from their W2 income.
3. Property managers, as a class, are usually horrible, but a good property manager is essential. (Keep looking!)
4. Rent, lower than what you want/need, is better than no rent.
5. Underwater properties aren't really a loss until you sell the property.
6. When you have a bad property, you can buy good properties to help make up the cash flow deficit.

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Nina Granberry
Rental Property Investor · Brooklyn, NY · Member since 2016 · 84 posts · 139 votes
6y
@Jerry Stevenson I am currently under contract on my first deal -- a duplex in Belton, MO. I live in Brooklyn, NY, so I decided to invest out of state. Before deciding to pursue, I attended webinars and read a bunch of articles focusing on analyzing deals, so I knew what to look for in determining whether it was a good deal or not. This particular article was pretty helpful. Also, as a pro member, I was able to put all the details about this deal into the rental property calculator to see that I would cash flow on it right away.
What I am learning is that it might feel scary to pull the trigger on a deal when you've never done it before. But taking action is what actually opens the doors. It's important to prepare and study and save $$ so that when the opportunity presents itself, you are prepared and can make moves.
6 Reply
Jerry Stevenson
OP
Investor · Austin, TX · Member since 2018 · 44 posts · 22 votes
6y
@Nina Granberry That’s great insight! Congrats on getting the duplex under contract! I wish you all the success!
0 Reply
George Pauley
Chandler, AZ · Member since 2017 · 174 posts · 269 votes
6y
Oh God, my first investment? I'm embarrassed to talk about it.

Brand new spec home. 4k sq ft. $450k. Oh and I closed on it early January 2008. Needed $2700/mo to break even. I was lucky to get $1800. Had to ride that, almost instantly, underwater property for 6 years before I was able to dump it for $420k. I was SO happy to see it go.

That said, I learned a lot. Today I have 15 properties, all cash-flowing around $200/mo each. And I wouldn't be where I am if I hadn't bought that first turd of a property. I like to tell new investors that the are going to make mistakes ($$$), but they can't let that keep them from taking the plunge and investing in that first property. The mistakes, and the lessons learned, are part of the process.

Key lessons from first property...
1. Medium size 3/2's rent much better than giant 4k sf mini-mansions
2. The IRS does not allow non-real estate professionals to deduct rental losses from their W2 income.
3. Property managers, as a class, are usually horrible, but a good property manager is essential. (Keep looking!)
4. Rent, lower than what you want/need, is better than no rent.
5. Underwater properties aren't really a loss until you sell the property.
6. When you have a bad property, you can buy good properties to help make up the cash flow deficit.
9 Reply
Jonathan G.
Investor · Marietta, GA · Member since 2015 · 382 posts · 258 votes
6y
@Jerry Stevenson
1st actual investment property
255k purchase In 2015 which was a bit under market value as home needed some big items addressed
2019 311k sale price
Rough numbers
-50k down then left with 205k loan. I did 15 yr at that time because I was really wanting to build equity and wasn’t as interested in cash flow at that time but still cash flowed in range between $0(zero) to $200 of cash flow throughout the years I owned it.
-15k initial repairs
-5k upgrade landscape (large trees removal, stumps, grading to open up very large back yard)
-5k turnover cost over the years
-5k repairs and maintenance over the years
-19k realtors sales commission (ouch!!!)
-7K closing
-~3K additional closing cost / fixes / cleaning warranties/ honey- do list etc
Check at closing: 109K which is really just 59K given my initial 50K down payment.
+ 56 K appreciation
+ 50 K renter funded equity
Lessons learned:
- Rapid building of equity is just dead / non functioning dollars. Now more interested in cash flow
-
- commission fees at sales eat up too much of your profit but although I technically already new this, I did not want to 1031 due to COVID and interested currently in Syndication deals.
- I was too dependent on appreciation so this is the only reason I didn’t lose money on deal but not a good idea to ever depend on appreciation again . At the end of the day, the money I made was not worth the time I had invested however the education and lessons I learned were far more valuable to me.
- Your taxes will always go up
- always include capital expenditures as things are always breaking and needing replacing
-NEVER get a Home Warranty as they are scams(just go to any one of their Facebook sites and spend about 30 minutes reading customers replies to their posts)
- know your State rental laws forwards and backwards. Same with details of your lease.
- always (ALWAYS) charge late fees
- minimize providing of W/D and fridge or at least have renter bring own or carry responsibility for repairs or replacement.
- be prompt with repairs and use trivial repair requests as opportunities to see / inspect properties
- SCREEN your tenants, never compromise your requirements and go without renter if you have to for a few weeks/ perhaps 1 month. If you can’t get anyone in there after one month, you are asking too much for rent.
-Help others on this site and enjoy networking.
2 Reply
Corey Hawkinson
Rental Property Investor · Bloomington, MN · Member since 2019 · 404 posts · 542 votes
6y
@Jerry Stevenson My first investment purchase was a 3 bed, 1 bath condo in a suburb of St Paul in July 2012. It had positive cash flow right away. My advice to people looking today would be to build a time machine and go back to purchase property in 2012. I look smart because I started in 2012. I would look smarter if I stayed aggressive after that.
My serious advice for those that can’t build a time machine would be to jump in when the numbers make sense. Understand that this is a long term investment. It is ok to just break even on your first investment IF you learn from the process. I still own that condo and the cash flow has increased since that time. I am considering a 1031 exchange in the future on that property, but I have to find a property that I like more.
2 Reply
John Teachout
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
6y
First property was a 3/2 and it took us 2 years to rehab it in our spare time. It cash flowed when we rented it out and we still have it. (and with that same tenant)
1 Reply
Joseph CacciapagliaBusiness Member
Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
6y
My first deal was a duplex that I bought in 2005 using over 100% financing. I actually got $1500 cash at closing, on top of rent/security deposits being transferred. I don't think we'll see those days again for a long time. I had found it on the MLS and negotiated a great deal after making offers on just about every duplex on the market at that time. I lived in one side with a roommate and rented out the other. I broke even until I moved out a year and a half later. At that time, I hired a property manager and it cash flowed pretty well. I sold it in 2009 for a decent profit. It was probably the worst time to sell, but I was out of work briefly and really needed the cash.
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Jerry Stevenson
OP
Investor · Austin, TX · Member since 2018 · 44 posts · 22 votes
6y
@George Pauley Great story!! Happy to hear you’re cashflowing on 15 properties! Glad you shared that story because I almost closed on a new built home for 260k, that would have cost me a lot of $$. I lost my 1k earnest check but I think it was worth losing.
0 Reply
Jerry Stevenson
OP
Investor · Austin, TX · Member since 2018 · 44 posts · 22 votes
6y
@Jonathan G. Sounds like you won on your first deal! Thanks for sharing the lessons you learned, I’m trying to soak up as much knowledge as possible!
0 Reply
Jerry Stevenson
OP
Investor · Austin, TX · Member since 2018 · 44 posts · 22 votes
6y
@John Teachout That’s awesome!!
0 Reply
Jerry Stevenson
OP
Investor · Austin, TX · Member since 2018 · 44 posts · 22 votes
6y
@Corey Hawkinson Haha thanks for the advice man! I’ve been considering condos, but haven’t found one that cash flows.
0 Reply
Jerry Stevenson
OP
Investor · Austin, TX · Member since 2018 · 44 posts · 22 votes
6y
@Joseph Cacciapaglia Thanks for the insight, sounds like you hit the jackpot and came in at the perfect time.
0 Reply
Joe Scaparra
Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
6y
I'll tell you about my 2nd duplex. My first duplex was half investment and half personal use, as my kids lived in it going to college.
Bought my 2nd duplex in 2005, Round Rock TX. 2 Bedroom 2 Bath and 1 car garage each side. $140k with 8k renovations but seller provided in concessions. Each side rented out for 725. One side today still has original tenant the other side original tenant moved out 2 years ago. Rents are now 1100/1200. Each side is identical but giving a big break for my tenant of 15 years!
I was cash flow positive day one at 725 rents. Now i am big time cash flow at 1100/1200 and mortgage pay off.
Lessons learned.
1. Run numbers to insure positive cash flow day one!
2. Invest in population growing community with expanding job growth.
3. Upgrade when able and keep up with market rents.
First five years I did not raise rents in fear of pissing off tenants. Finally, taxes were rising so fast, forced me to get a backbone. I also did not enforce late fees. Got lucky with good tenants but my other properties not as lucky. As soon as I started enforcing the rules of the lease my property management headache diminished greatly.
Lastly, invest for the long haul, keep all inflow and outflows in separate bank account from your personal account. Stay focused with goal in mind. I have yet to sell a property and all are paid off with tenant monies. I also was putting down 20% even in 2005 when it was not required. It helped keep me cash flow positive and help me avoid PMI. Cheers.
3 Reply
Dan Schwartz
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
6y
3/2.5 on 2/29/2012 at 30% of what the previous owner paid. Cashflowed immediately and I wish we had had a warchest to buy the entire neighborhood. We did get an offer accepted on another house down the street, but didn't know that we could get financing so quickly after buying the first one. We backfilled that knowledge gap and owned a 4-plex three months later.
2 Reply
Suzette T.
Rental Property Investor · Acadiana / South Louisiana · Member since 2019 · 115 posts · 49 votes
6y
Our first deal was accidental- we bought a mobile home cash, only financed the land, slowly rehabbed over four years while living there, paid the land off, moved out and had it under contract for rental for 100% cash flow.
Good luck!!!
2 Reply
Jerry Stevenson
OP
Investor · Austin, TX · Member since 2018 · 44 posts · 22 votes
6y
@Joe Scaparra That’s crazy Joe! 725 day one?! It’s harder to find deals like that today. I’ve been looking at duplexes since your last post on the other thread I made. Thanks for sharing your story.
0 Reply
Jerry Stevenson
OP
Investor · Austin, TX · Member since 2018 · 44 posts · 22 votes
6y
@Suzette Thibodeaux Amazing!
0 Reply
Peter Baudendistel
Rental Property Investor · Knoxville, TN · Member since 2018 · 36 posts · 36 votes
6y
@Jerry Stevenson
My first deal was a remote turnkey property in Little Rock AR. I drove 8 hours to view it before closing, met the PM, and had some fun with my old man for a day during the trip. The home cashflowed day one a few hundred a month. What did it teach me? Let go a little bit, be an educated risk taker. My first tenant paid enough to cover my annual liabilities, even considering I had to evict after 8 months due to non-payment. I was OK. It worked out. Reserves are important, even if everything check out.
My first real deal all on my own? A packaged primary home with in law house out back. I saw it linger on MLS for months, put a bid in which was ultimately rejected, they fired their agent, it sat for another few months, they listed FSBO and we reinitiated our offers. It was accepted. Long story short, the package deal sealed in about 10% equity on the big house, and we paid 35k cash for the smaller home to get the deal done. I have done no real work to the smaller home, and it is renting for 855 a month on a 2 year deal. I am completing a cash out refinancing next week and pulling out 100k of equity. I'll now be cash flowing 330ish a month, but "found" 100k for my next deal! On this, I learned to be patient. Be creative. This place languished because of the odd package circumstances. Not many people could afford the big home AND wanted a rental next door. I could, and I did. I took a 401k to make the cash deal work, and it paid off with major dividend.
3 Reply
Brian Whitney
Member since 2019 · 5 posts · 4 votes
6y
Bought a duplex for 30k and did a 50k rehab. ARV was 115k. I refinanced and pulled out all of the 80k I had invested.
Rents are 1445 total. I cash flow $200 a door when it's all said and done.
I had no idea what I was doing, but ended up with a pretty good BRRRR for the first time.
1 Reply
Jeremiah GoodpasterPro Member
Member since 2020 · 28 posts · 15 votes
6y
@Jerry Stevenson
We closed on our first investment property last Oct after watching some biggerpockets on YouTube. Bought a single family home 4/2 paid $73500 appraisal value was $78k at purchase but &114k market value. Put down 25% and spent $20k in rehab, went over my rehab budget by $5k due to my lack of research on current cost(should have estimated better in my end), forgetting that it's a house and not a home(going overboard). I currently cash flow at $330 a month but my current ROI is around 8%. About to do a cash out refi and should push my ROI to around 11% and cash flow to $300ish. Hopefully we will find something else just as good for the money I get from the cash out refi.
0 Reply
Connor Mckelvey
Rental Property Investor · Boulder, CO · Member since 2018 · 29 posts · 10 votes
6y
@Jerry Stevenson Bought my first property in April 2019 for 75,000. It was basically a turn key townhouse. Put in about 5k for paint, LVP and light fixtures. Cash flowed right a way due to a housing shortage and rented for $1200/mo. The tenants skipped town halfway through the lease but got it filled a couple weeks later for a lower rent. But still rented way above my projections.
2 Reply
Avery CarlBusiness Member
Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
6y
I had absolutely no idea what I was doing. Had never read a book or listened to a podcast. Somehow, that property is still my highest cash flowing LTR haha. It cash flows $900 a month. Just a 3/2 single family in a C+ neighborhood.
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1 Reply
David Chappell
Austin, TX · Member since 2018 · 164 posts · 107 votes
6y
@Jeremiah Goodpaster that’s awesome! What market?
0 Reply
Jeremiah GoodpasterPro Member
Member since 2020 · 28 posts · 15 votes
6y
@David Chapoell
Fayetteville NC. Currently in the process of cash out refi to do a BRRR. Found a couple houses we like but don't have the cash on hand until we do the refi. Told that currently it can range from 1-2 months to complete.
0 Reply
Jeremiah GoodpasterPro Member
Member since 2020 · 28 posts · 15 votes
6y
@Connor Mckelvey
I considered looking at condos and townhouses but was really put off by the HOA fees. What drove you towards them? How much does the HOA fees affect your cash flow? What did the numbers look like for you to decide to pull the trigger?
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