First investment (and out of state)

[Kevin Hofstee]

Investment Info:

Single-family residence buy & hold investment in Grand Rapids.

Purchase price: $85,000
Cash invested: $58,000

Value-add out-of-state single family home purchased @25% down - cash flowing $580 a month (12% cash on cash before refinance, which is not done yet).

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

After sitting on the sidelines for too long, finally decided to take action. I was looking for a value-add opportunity of a property that would also qualify for conventional financing.

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

Brought to me by my realtor (who is also a licensed builder and an investor himself). He did a walkthrough and a rough estimate of the amount of work needed. We expected to be in a competitive bidding situation, and went over asking - but after conducting an inspection and identified the full list of issues, we were able to negotiate back down to their original asking price. They actually didn't counter, so doing so again - I'd be more aggressive in my discount ask.

How did you finance this deal?

Conventional financing with 25% down at a local community bank that offers an additional reduction of interest rate of 0.125% if paying the mortgage from one of their checking accounts.

How did you add value to the deal?

Added a half-bath, tore down a wall to make a bigger living space, new flooring and paint, added an additional counter top in the kitchen to make more usable space, put-in stainless steel appliances, added washer/dryer hookup.

What was the outcome?

The rehab took about 3 months (could have been done faster), but we're cash flowing $580 a month (after PITI, 5% each for vacancy, OPEX and CAPEX, 10% property management) and are getting a 12% cash on cash return (will change if we do a cash out refi).

Lessons learned? Challenges?

The rehab took longer than planned, largely because we weren't sure what to do, nor who to have do it - we've been building up our contractor contacts over time - joining the local area Facebook Investors group was the best decision we made. We did miss some minor things during the rehab, like one room had no heat source, and we let the contractor make design choices a couple of times, which we ended up re-doing in or two instances. Overall a great learning experience!

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

Our property management team from United Properties of Michigan led by Tim VandenToorn was great an onboarding a new investor and connecting us with a great realtor / builder.