First Property Purchases - Duplexes in Saint Louis

[Karen Tsoka]

A little over a week ago my husband and I closed on our first home and first rental properties. We were looking to house hack for our first home in the south city.  An investing company my husband is an acquisition manager for came across an investor who was willing to sell two duplexes in Tower Grove East and we managed to purchase both!

The homes in the area have increased in value significantly over the past couple of years. Both properties have an ARV of around 200k each. The seller sold it for 260k (for both) and they were wholesaled to us for 275k.

Summary

Purchase Price: 1st property - $211,000 ($8,975.08 paid in out of pocket closing costs/down payment.)

                    2nd property – $70,000 ($1,129.31 paid in out of pocket closing costs.)

Down payment: 1st property - 3.5% (using FHA loan for one of the duplexes)

                        2nd property - 0% down for the investor loan.

Loan amount:    1st property - $206,883 at fixed 2.25% interest for 30 years (FHA loan)

                        2nd property – $112,244.90 (70k for purchase, 40k in escrow for repairs on both properties, and 2 pts for loan origination)

Monthly Payments: 1st property - $1,176.74

                        2nd property - $1,123.00 (I/O payments for short-term 6 month loan)

Estimated rehab: $40k-55k (to be covered by repair escrow and out of pocket)

Where did I find the Property?

This was an off-market property from an investment company. A super important thing we did was we spoke up about what we were looking for.  When we told others what we were looking for, it was only a couple of week before someone introduced us to this deal.

Appraisal

Appraisal was ordered by my lender for the property we live in and the house appraised for the 211k for the FHA loan.

Renovation

Initial rehab estimate is $40k but I think the total rehab amount will be closer to $50- $60k.

We will be working on the following: tuckpointing and roofs on both properties, bathroom and kitchen remodel, remediation of water damage/plaster damage in investment property.  We are also looking for new cabinets and appliances in three units.  One unit (in the investment property) is currently occupied – the unit is about $200 under market rent. We will be waiting to make improvements on the unit and consider adjusting the rent until after we get the renovations done and the other two units leased at market rate.

Market Rent

The unit in our owner occupied duplex is considered a 3/1 and can rent for approximately $925/month.

The unit next door is a 4/1 and can rent for $1,050/month.  The downstairs unit (which is currently occupied) is a 3/1 is currently rented for $725/month.

Next Steps

We have started tuckpointing and are getting quotes for roofing. There is a bit of water damage in one of the units due to a bad roof.  We need to get that started to get work on the inside completed.

I am getting quotes for a investor mortgage. Due to a bankruptcy a couple years ago, I get a conventional mortgage. Furthermore, due to the LLC owning the property, I think I have to look at commercial financing (?). Our LLC is very new, we have no investing experience, and don't have a year of rental income. Because of this we are focusing on non-income investor DSCR mortgages. Because of the equity, we have the ability to potentially do a cash out refi and get our investment out (making this a BRRRR). I am really running the numbers to see if this is a good move for us – I don't want to make this a breakeven deal (or cashflow negative). The higher interest rate associated with this type of loan means a cash-out may not be the best choice. We will decide after looking through all of the quotes we have.

Lessons Learned/We are learning

The deal was on the rocks a couple of times because the owner of the property seemed unreasonable.  In the end, proper communication solved a lot of the issues. He knew we were getting the homes through assignment and a lot of questions and concerns should have been dealt with him directly instead of speaking through the wholesaler.

The owner didn’t have a current lease with the one tenant and came up with an excuse for not getting us their security deposit.  We should have stressed that all of that documentation was turned into the title company, however due to us wondering if the deal was even going through, some of those details got missed – we also didn’t know how the process worked until a few days before closing so we couldn’t move things forward.  We could’ve negotiated with the seller, but my husband and I decided to just let it go to ensure things moved forward. The security deposit is approximately $550 we may have to come up with depending on the property condition.

Again because there was significant uncertainty in the deal going through and problems with getting access to the property, we did not get quotes for the rehab as soon as we should have – this meant we didn’t have a super accurate understanding of the rehab costs nor did we start getting quotes until after closing.  This has meant there has been a significant delay in getting things started/we now have winter weather to deal with when planning tuckpointing/roofing appointments.

Overall, we are a little anxious when thinking about the rehab, but we are excited to finally be on the investors journey!  Its also nerve-wracking being a first-time homeowner. While my husband has owned a home previously, this is my first experience. Its humbling to recognize that not only are you in charge and responsible for your area, but you are also in charge and responsible for providing a safe place for others to live.  We will be providing a service and that goes further than just numbers. We will be providing a home!

Its also amazing how we completed the closing and I immediately am looking at properties and numbers.  It's a bit addictive - I am staying focused on learning the market and staying ready to find the next great deal!

Thank Yous:

There are so many people who have helped make this deal possible.  We have found that nothing we have done would be possible without an amazing community of real estate investors who have helped us through the process.

Some of the many companies who deserve a shout out include:

Three Doors Properties – helped us buy the property and provided the hard money for improvements.

Complete Realty Solutions – providing property management and a lot of specialized advice on exactly what we need to maximize rent as well as suggestions for contractors, etc.

There have also been many individuals who have talked to us, answered questions, and have opened themselves up to be a resource.  I am optimistic in our investing future and hope one day we can pass on the things we have learned to others!