Investment Info:
Small multi-family (2-4 units) buy & hold investment in Philadelphia.
Purchase price: $268,500
Cash invested: $11,204
The Property:
My first rental is a semi-attached triplex in an up-and-coming neighborhood of Philadelphia. The building consists of two 1-bedroom units and one 2-bedroom unit. There's a decent sized yard at the rear of the building. There's an unfinished basement with 3 sets of washer/dryers. The property came with security cameras and a Ring Doorbell. Due to my loan type (FHA), my girlfriend and I lived in the 2-bedroom unit for a year while the other two units were occupied by legacy tenants from the previous owner (who also lived in the 2-bedroom unit). The electric is separated and provides hot water. The building uses radiant heat via hot water and uses gas to provide the heating. The gas is unfortunately not separated and has only one controller for the entire building (which is located in the 2-bedroom unit). The water is also not separated. I'm currently managing the property myself.
The First Year:
During our first year there, we added keyless locks to each unit and a parcel delivery lockbox. We removed all carpeting throughout the property, replacing it with vinyl flooring. We had a changeover of tenants in one of the units (Unit 3). These were legacy tenants from the purchase. They left the unit in pretty rough shape: smoke damage in every room, ceiling fan broken, bedroom door broken in half, trash left behind, food rotting in fridge, and just general damage throughout. Luckily since we lived at the property, me and my girlfriend were able to turn the unit around ourselves in about 2 weeks. We upgraded the carpet to vinyl flooring, did a bunch of treatments for the smoke (vinegar, ozone, Killz), repainted the cabinets, and installed some cheap upgrades throughout. We filled it rather easily and with a great tenant. We ended up getting a $200 increase in the rent too. Pretty big win for us even with the work left behind from the legacy tenants.
We moved out a year after purchase and filled the 2-bedroom for $1200. We probably went a little too aggressive on the rent, as we could have secured a better tenant at $1100, but the current tenants have still been fine overall. We still have the legacy tenants in Unit 1, who are phenomenal.
The Financials:
I purchased the property for $268,500 using an FHA loan (3.5% down) in late July of 2020. I locked in a 2.75% rate and my cash-to-close was just under $12,000. We got about $13,000 in seller's assist. Here's the monthly income and expenses:
Unit 1 (1/1) - $800 (Yearly Lease, legacy from purchase)
Unit 2 (2/1) - $1200 (6-Month Lease)
Unit 3 (1/1) - $900 (Yearly Lease, up from $700 at purchase)
Total Income - $2900
Mortgage P&I - $1076
Homeowner's - $157
PMI - $182
Property Taxes - $183
Water - $86
Internet - $60 (needed for security cameras)
Gas - $103
Garbage - $42
Landscaping - $47
Total Expenses - $1922
Cash Flow - $978
Going forward, I'll be using a cash reserve to handle any vacancy, CapEx, and maintenance costs. It'll be refilled with cash flow as reserves are pulled.
Cash Reserve (Vacancy/CapEx/Maintenance): $8,000
Some plans going forward are look into ways to separate the water to each unit and possibly see if we can upgrade the back yard to eliminate grass. But that might not make sense with the yearly savings in landscaping. It'd also be nice to get rid of that PMI with a refi, but might not be likely since rates are already on the rise.
Overall, I think we did extremely well and I’m incredibly happy with this first property. I spent over a year researching and learning, mostly with the help of BP, and then another year searching. I’m building out a property management company and ready to add another property to my portfolio!
