I’ve been a bigger pockets member since sometime in 2011. I originally joined just to read up on different topics thinking someday I might invest in multifamily properties. I read and read trying to educate myself on everything I could. Here’s the story on my first property.
A little about me to start off, I grew up on a large farm and ranch and consider myself a jack of all trades. I know lots about construction, electrical, mechanical, and operating heavy equipment. Now I'm 29 years old and I work as an engineer in the energy industry . As an engineer, I am naturally drawn to things that require financial analysis. I used to waste my weekends browsing and analyzing properties on loopnet. I suffered from "paralysis by analysis" for about 3 years (that combined with I didn't have any money) but in those 3 years I decided I wanted to buy an owner occupied 4-plex and that I would go the FHA route for financing and eventually I would find the right property.
Eventually I found a property. 4-plex built in 1980 which has 3 units that are 2 bed 1 bath and a single unit with 1 bed 1 bath listed at $250k. Total rents equaled $2450. The units are small at 750 square feet each. Tenants pay all utilities. I called the realtor and found out that it had a new roof in 2012 and all new windows in the 2005-2008 range. The current owner updated all the kitchens and bathroom vanities (totaling $20k in upgrades). It needed a paint job but the siding was still in decent shape. It had one open unit (the previous owners). I did my analysis using information the realtor gave me. Costs from the previous owner were scarce but gave me enough to do a semi-accurate analysis. It wasn’t a huge money maker so I never went any further. The analysis paralysis came back because it failed the 2% rule (not even close) and only broken even on the 50% rule. Six months went by and the property was still for sale.
In these six months my everyday job became a lot more stressful with more responsibilities and accountability and I grew as a person. I decided that I can handle this property even if it only broke even. The hell with the 2% rule because it’s just a d@mn rule of thumb. I have a very good salary and we was paying as much for rent than the mortgage on this 4-plex. I had to live somewhere, right? If I was the only tenant I would survive. I bought the place for $229k and the seller covered all my closing costs. I paid too much.
I do all the maintenance which saves me money. I have absolutely wonderful tenants. These people pay rent early. One guy wants to mow the lawn just for something to do. This will not continue forever and I’m definitely spoiled for the time being.
Mistakes made: FHA financing is not easy or fast. I was one day short of 3 months from offer accepted to closing. I closed 1 day before I got married. I thought my background would save me money on the inspection; this was a huge huge HUGE mistake even though I haven't run across anything I missed on my inspection. I went into the deal knowing the property would need some electrical upgrades on the outside of the building. I was way off on the cost of these upgrades. I will lose money in year 1 and 2 because of my stupidity. If you know repairs will be needed then get a contractors estimate before purchase. I have not had a vacancy yet. My area has extremely low vacancies (<2%) but is dependent on things that are out of my control (commodity prices).
Successes: I had money in the bank after closing (more than $15k). I got my feet wet. I don’t like managing the property but I do like owning it. Property managers can be just as needy as tenants (I use a property manager now). Rules of thumb are only triggers for doing more (or less) research and analysis. I should have put more offers in along the way. Good bankers are extremely helpful.
Future: The wife and I are paying the mortgage down in huge chunks. We will refinance for $150k within one year from today. Even with a 5% interest refinance rate we will pay $400 less per month than we do now (mortgage insurance included). The property will have no trouble maintaining and paying for itself. We will use the equity to help buy a house to start our family.
This business IS FOR ME even though I consider my first purchase an almost failure. I broke my first rule; don’t overpay! I won’t make this mistake again.
