Since this was my first investment property, I was looking for something which would provide good cash flow and give me a good foundation in rental property investing that I can learn from and use the experience to build to bigger and better deals in the future. Although this deal certainly wasn't a home run since I had to leave almost 50k in the deal, I now have the confidence, systems, and ability to pursue deals which will allow me to recycle capital in the future.

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

Found on the MLS. Saw it the morning after it was listed and made an offer immediately that was slightly over list price. I had been searching in Allentown for a while, and all of the 2 unit properties at this price where either in a not-great location, needed significant work done, had problematic tenants, etc. My realtor and I felt this property was listed slightly below what it was currently worth. Especially since it was listed as having a 2 bd apartment upstairs, not a 3bd.

How did you finance this deal?

25% down conventional 30 yr fixed at 3.625%

How did you add value to the deal?

The upstairs unit (3 bd) did not have hookups for in-unit laundry, so I added necessary plumbing/electrical for washer/dryer. Also for both units replaced flooring in kitchen/bathrooms/etc., refinished dated cabinets, replaced countertops. The first unit kitchen layout wasn't functional so I moved a couple things around which created way more countertop space. In hindsight, I may have slightly over-rehabbed since it likely wasn't significant enough to be able to appraise for a high enough value to where I could pull that back out through refinance. But I don't regret it since I was able to get incredible tenants in at market rent. In the condition it was when we closed, it likely wouldn't have attracted such great tenants. I attached some before and after photos at the bottom of this post.

What was the outcome?

The 3 bd unit is rented at $1200, & the 1 bd unit at $885, both to great tenants who pay early each month. Since I am initially managing myself, I am netting around $600/month after budgeting for vacancy, maint/capex, etc. About a 13% CoC return. As I scale and add property management this number will be slightly lower.

Lessons learned? Challenges?

Far too many to list in this post, but I'll give it my best shot.

Most important realization I've had is that I don't want to have to save up $50k+ each time I buy, so moving forward I'm going to be looking for ways to create equity and be able to pull out the capital I put in. Those in Allentown know it's an incredibly competitive market right now, especially in the 2-4 unit space, so this is going to be my biggest challenge for my next purchase. Purchasing property at retail value on-market isn't going to allow for the acceleration in net worth and cash flow I'm looking for.

Besides the washer/dryer hookups I mentioned above, I did all of the work myself (with some help from my Dad as well). This took way longer than expected, was harder than expected, cost more than expected, and was bloody at times (P.S.A - utility blades are very sharp). I was mainly doing this so I could learn exactly how everything was done and how much common repairs cost, so I will be more educated on this in the future when hiring it out. I also definitely had the time for it and thought it would be fun. I don't regret this, but I know in order to scale it doesn't make sense to take a month or longer of 16 hr days to do the rehab myself.

I would not recommend self-managing to anyone who's not willing to take the time to learn how to do it right. I spent countless hours educating myself, creating screening-criteria, etc. and I still made a few mistakes along the way. If you are short on time it's far better to hire a professional to do this rather than try to do it yourself, since a bad tenant could do a lot of damage. Similar to doing the work myself, I'm self-managing to learn how to do it right so I can be well-equipped to hire the right person when the time comes.

Also, claw-foot tubs are the worst. I should have just had them replaced with a surround tub and will do this in the future when it makes sense. I kept them mainly because I didn't want to take on that large of a plumbing project myself on my first property, and I thought they were pretty cool and a nice way to leave historic Allentown character in the unit, but they were a headache throughout the entire rehab process. Lesson learned.

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

The realtor I used was David Ribardo, who was an invaluable asset from start to finish and connected me with many of the professionals I used throughout the entire process. I connected with him on BP initially, so I recommend any investor looking to buy in the Lehigh Valley sends him a PM!

The lender I used was Michelle Wahlmark with Movement mortgage. I also was really happy with the inspector/insurance agents/etc. that I used. Feel free to PM me and I'd gladly connect you with them.

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