All Forum Posts by: Michael Tucker

Well, I closed on my first property last Thursday and signed a lease with my first tenant this morning. I honestly don't know what sparked my interest in real estate investing about 14 months ago. At the time, I had just started working my way through Dave Ramsey's Baby Steps with an ambitious goal to pay off $35k in debt in about 11 months. During my debt-free journey, I was saving about $2,000 a month, but once only my $12k student debt remained, I decided to put all of that on hold and instead of paying off the debt each month, I would invest in some mutual funds. Even if it only made me $500 or so by the time I had invested enough to pay off the student debt it would have been worth it. Sure, I could have lost money but I didn't really care - I thought the reward outweighed the risk. Once I had actually saved up / invested enough to pay off the student loan I decided that I wanted to wait and see if Congress would eventually pass a student loan forgiveness package, so instead of this being my student loan pay off fund it transitioned into my Rental Property down payment fund. It turns out I started investing at a great time. I pulled out before the market hit the bottom in March and put back in at the bottom and have been riding it up ever since. I've been very lucky in this regard. I put fuel on the fire by earning extra income driving for DoorDash and Bite Squad so since March, I've been able save about $4000 per month. 

Okay now to the actual real estate investing side. I started listening to the bigger pockets podcast last summer and bought the book on how to manage rental properties. In February I started making offers and by the time June rolled around, I found a property on the MLS that I knew I could get cheap enough to go ahead and pull the trigger on with an offer I knew would get accepted. The property is a 2 bed/1 bath that I bought for $64k that is move-in ready. My tenants are renting it for $750. I put 20% down on a 30-year mortgage. After the PITI is paid, I'm left with about $378 each month. I'm hoping to have a final cash flow of about $200 or so per month. I went ahead and pulled the trigger knowing that even if I broke even on the deal it would have been worth it to go ahead and get a real-life education (not just numbers on a calculator or spreadsheet) and be able to move on to the next deal. The confidence of getting that first deal underneath you is huge.

With my extreme saving (and a nice beneficiary check from my grandma's life insurance policy) I'm probably going to make an offer on my next property in the next week. My goal is to get 2-3 more properties by this time next year. That'll probably bring me close to my limit on DTI ratio that a bank will be willing to lend to me on so after that I'm probably just going to rack up enough money to pay cash for properties. For the next 10 years, my goal is to just buy as much cash flow as I can. I know I kind of rambled and this has been very stream-of-consciousness but if you're on the fence, go for it! If you've got a deal that's close on the numbers, I think it's worth it to gain confidence and a real-life education.

That's what the tax records website says. I don't know how that compares to the rest of the country, but that's pretty average here.

First, I'm only responding so I get to type the phrase "naughty bits". Second, I would repost the ad without the picture containing the naughty bits.

I agree on the property management thought. Thanks for your input - It's great to get another perspective!

@Kevin Zolea I'll manage it myself for now. Vacancy isn't included in my expenses because it's its own separate thing in my calculator. The $3000 is CAPEX and repairs. I'm expecting a slightly lower CAPEX because it's got a new roof, water heater, and HVAC. I went ahead and ran the numbers with a $4000 and a $5000 expenses scenario, and both versions still cash flow over $100 a month. My main concerns are can I keep both sides occupied at the same time or is an attached short term rental/apartment going to be a deterrent for some families or college kids? And, are the utilities going to be a huge issue? This thing could cash flow at upwards of $700 a month if some of my higher projections for rent prove true. Like I said, worst-case scenario appears to be that I use it to house hack, break even on the cash flow, and live for free while renting out my current residence for a small cash flow.

I'm looking at a buy and hold property. It's a 1900 sqft. 4 bedroom 2 bath house  (built in the 50's) with an attached mother-in-law suite that has one bedroom, a kitchen (converted garage), and a bathroom. I think the mother-in-law suite could either be a short term rental or serve as a fully furnished rental. Here are my options:
1. Rent out the whole thing to a very large family.

2. Rent out the House part and the mother-in-law suite separately (could also be a short term rental). 

3. Live in one part of it as a house hack and rent out the other side depending on demand.

In the absolute best-case scenario, I think I could potentially get up to $2400 a month in rent because this is a college town. I think I could rent each room for up to $450 as a student rental + $600 for the fully furnished mother-in-law suite / short term rental. I think the house portion would rent for around $950 - $1000 to a family. At worst, I think I could make $800 a month on some sort of house hacking strategy - live in the main part with a roommate and rent out the MIL suite, or rent out the main house while living the MIL suite. So in the worst case, I'm living for free.

Other variables: It's a 1-acre lot that's zoned for multi-family and has enough leftover space that I could use someday for a triplex or just divide it and sell.

New roof in 2019, new hot water heater and HVAC within the last 3 years.

The utilities are combined so I'd either have to include it in the rent or work out another solution.

I think I can get it at $120,000 with either 15% down on an investor loan or 5% down on a conventional mortgage.

Taxes: $950
Insurance: $1200
I would manage it myself for now.
In my various scenarios, I either run $1000 a year for expenses for living in the main house and renting out the MIL suite or up to $3000 a year in expenses for the student rental scenario. (keep in mind new roof, water heater, and HVAC)

Disclaimer: Just started this adventure and still discovering what I don't know so feel free to take my response with a grain of salt. I think it depends on what you're trying to achieve. In general, the more money you put into the deal (down payment, rehab costs, etc) the lower your CoC is going to be - unless you do a refinance using the BRRRR method. If you buy a property with cash it's going to have amazing cash flow, but most likely a low CoC which is probably fine for some people. Anything will probably cash flow when you're buying a property outright. I will probably switch over to this form of investing once I get myself established. Right now, I'm trying to get the biggest bang for my buck (high CoC) with as much cash flow left over so I'm mostly looking at trying to put as little down while still generating solid cash flow. My bottom limit is probably 10% CoC and $150 cash flow, but a lot of that depends on the property I'm buying and how much I'm paying to get into it.

Just got through paying off quite a bit of debt myself. Dave Ramsey is great for this sort of thing so if you haven't checked him out, I would strongly recommend you look him up on YouTube or his website. Some people are probably going to disagree with that comment, but when it comes to debt reduction his stuff works. You don't have to agree with his thoughts on leverage, etc. to know that he's good at getting people out of debt. I wouldn't be in the position I am today without his advice this time last year. I went from having a car payment and student loan to being able to put $2000 per month toward gaining enough capital to use to purchase my first investment property. I just made my first offer today! 

I would not add more debt to the situation. The only real estate move I would consider making until the debt was considerably lower would be house hacking with an FHA loan or something with very little down. If that's not an option, can you get a roommate? Even a roommate would probably allow you to cut your housing expense in half. That would allow you to throw as much money as possible at your debt and I bet you could pay it off in two years or so if you were really serious about it and got a side hustle/2nd job.

I could be reading the report wrong, but I don't see where you accounted for insurance, vacancy, capital expenditures. Even with those things unaccounted for the CoC return is pretty terrible (3.2%). You could do way better in the stock market.