All Forum Posts by: David Kramer

Investment Info:

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

Purchase price: $131,500
Cash invested: $41,000

We found this house on the MLS and are able to rent it for $1325. In order to secure conventional financing at a lower rate (4.5%) we put down 25%. The remaining cash invested is closing costs and about $5,000 in rehab that we accomplished in the days immediately after closing. We are learning a ton about the Grand Rapids market and are looking to be more aggressive in our deal sourcing and negotiating on the next one.

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

I own a rental house in Pensacola, FL that I purchased as a primary residence and house-hacked while in flight school. After moving from FL, I kept the home and it has been a solid investment ever sense.

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

I found this house on the MLS and negotiated the price down after the home inspection came back with some issues I did not know about prior to putting the home under contract. I asked for a price reduction of $5,000 with another $2,500 back at closing and they lowered the price by $3,000 and gave back $2,500 at closing.

How did you finance this deal?

I used a conventional 30 year loan with 25% down through a local credit union.

How did you add value to the deal?

I made some minor repairs to the home prior to renting it out.

What was the outcome?

It is currently rented at $1,325 a month (allowing a $240/mo cashflow)

Lessons learned? Challenges?

I overpaid for this house a bit. I used my entire emergency fund to pay for the down payment and rehab of the property. There were some cosmetic issues that I deferred that I would have fixed up front if I were to do this deal again in the future.

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

My agent for this purchase was Jake Thomas - he is an active member of the BP community.

Investment Info:

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

Purchase price: $131,500
Cash invested: $41,000

My wife and I have been looking for our second rental property for 6 months. 9 offers later we got this property under contract. We found this house on the MLS and are able to rent it for $1325. In order to secure conventional financing at a lower rate (4.5%) we put down 25%. The remaining cash invested is closing costs and about $5,000 in rehab that we accomplished in the days immediately after closing. We are learning a ton about the Grand Rapids market and are looking to be more aggressive in our deal sourcing and negotiating on the next one.

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

I own a rental house in Pensacola, FL that I purchased as a primary residence and house-hacked while in flight school. After moving from FL, I kept the home and it has been a solid investment ever sense.

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

I found this house on the MLS and negotiated the price down after the home inspection came back with some issues I did not know about prior to putting the home under contract. I asked for a price reduction of $5,000 with another $2,500 back at closing and they lowered the price by $3,000 and gave back $2,500 at closing.

How did you finance this deal?

I used a conventional 30 year loan with 25% down through a local credit union.

How did you add value to the deal?

I made some minor repairs to the home prior to renting it out.

What was the outcome?

It is currently rented at $1,325 a month (allowing a $240/mo cashflow)

Lessons learned? Challenges?

I overpaid for this house a bit. I used my entire emergency fund to pay for the down payment and rehab of the property. There were some cosmetic issues that I deferred that I would have fixed up front if I were to do this deal again in the future.

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

My agent for this purchase was Jake Thomas - he is an active member of the BP community.

@Dale Ferguson - Hey, welcome to the forums! I currently live in San Diego, but have one rental in GR and am looking to build up a reserve then go after a few more. If you want to chat you can shoot me a PM! 

Hey @Ethan Wolff! I'd love to hear more about what you've got going on down in AZ. I pretty new myself - one rental in Pensacola, FL and a second in Grand Rapids, MI that I snagged last month actually. BP has been an awesome resource for me, both knowledge wise and getting connected with some solid folks that have made the process much more smooth than it would have been otherwise. Let me know if there is any way I can help. 

David

Hey all! Love the idea of just getting some names out there of people doing some good work in the area! I am currently stationed down in San Diego, CA but bought my first Grand Rapids, MI rental last month. 

Did you take a partner who brought the down payment? 

@Jason V. - Welcome! I live down in San Diego and totally understand how you feel. I think out of state is definitely a great way to get started. There are definitely some pros and cons (as with anything in life). I am currently targeting the West Michigan area. When getting started out of state it helps if you have someone in that area to be able to steer you out of bad neighborhoods as a few streets over can make a huge difference. This can be your agent, a partner, or family/friends. In my case, my in-laws live in Grand Rapids and have been a huge help (along with my agent). Here are a few quick Pros/Cons. If you want a more exhaustive list, I would check out the BP Book on Long Distance Investing.

Pros:

• You choose your market. You don't need to settle for awful Price/Rent ratios, inflated valuation, war-zones, or places with unfriendly landlord-tenant laws. If something turns you off to that area, you are free to move on to the next place on your list!
• With all the available technology, you can have agents/contractors/inspectors take videos and pictures to verify key facts of the house allowing you to basically "be there" 
• Removes some of the emotional connection to a property allowing you to make a better business decision for you. It is still possible to become attached, but the distance helps you emotionally distance yourself from the property.

Cons:

• Difficult to make the connections. You will be unable to meet face-to-face with your contractors and agents and you will not be able to go to the local REI meetings. This can be corrected by doing your homework. Read (and verify) reviews. This is where BP can be a huge help. I found my agent in Michigan through BP.
• Unfamiliar laws - things in each state (purchasing process, landlord-tenant laws, property taxes etc) will be different than where you live and what you are used to. Learning these involves some more work on the front end, but it is really no reason to hold you back. 
• Unable to save money by doing some of the work yourself. This, in my opinion is a pro disguised as a con. I really don't want to spend my nights and weekends doing all that hands on work. Now I have an excuse not to. 

All in all, it is a great way to get into real estate if you live in an expensive place like LA. Another alternative I would look into if you are interested would be house hacking. However, I would agree that house hacking is not scalable and long distance investing is. Good luck!

I definitely don't think that is a bad idea as long as you are in a position to make the additional payments on your new, larger mortgage. Closing costs will eat some of that cash out money up (that is one area you save on a HELOC), but you might make that up with a longer amortization period and potentially better rates with the 30 year refinance.

I stay extremely conservative in appreciation (1-2%) and am more concerned with the cash flow number. With solid cash-flow you will be able to hold a property through an entire down cycle and re-capture appreciation on the ensuing upswing. If you are banking on appreciation to make your money on the property it could put you in a bit more of a jam during any market price correction. 

@Tiana Engstrom - Take a look at the rate spread between the HELOC and a Cash Out Refinance - Your payments may actually be lower as the term on a HELOC can range anywhere from 5-25 years depending on the bank whereas you can go 30 year on the Refinance. To echo @Michael T., you'll be able to pull more out with a refinance. 

Make sure you account for all anticipated repairs/expenses when checking your cash flow to see how much you'll be able to pull out. Just because you have 400k in equity doesn't mean you'll be able to afford to pull it all out.