Hi Everyone,
My husband and I closed our very first rental property two months ago. ( WHOO!!! ) I waited two months to write this post so I can share some of our experience as first- time landlords.
We started looking into real estate investing back in October 2016. My parents live in China and they could get retired at the age of 54 because of the two commercial rental properties they invested over 10 years ago. Though real estate market in China is very different, I got curious about what I can do in my local market which is central Connecticut.
Our goal was to buy a multi-family within three months with a minimum 10% cash on cash return. The three - month goal turns into 6 months' search, we relied on a realtor who didn't have any experience working with investors and MLS is our main source of leads.
How we get the deal:
When we found it on Zillow, the number is great. We contacted our realtor to arrange showing but were told there are already two offerings and the listing agents no longer arrange showing, the listing later turns pending. We walked away but couple of weeks later it went back to market again. We learn from our agent that there was a bidding war and the buyers even put an offer higher than the asking price. However, both bidders are out of state and the listing agent was very hard to work with and make the showing very difficult. The person who win the biding end up backing out of the deal.
The numbers:
- Location: Bristol, Connecticut
- Property Description: Triplex, each unit has 3 bedrooms, one bath. It’s fully rented.
- Asking price: 215k
- Purchasing price: 205k
- Appraisal value:228k
- Gross monthly rent: $3,260.00
- Financing: conventional loan 25% down payment
- Vacancy 10% / Repair and maintenance:10% / Property management 10% /Capital expenditure 3%
- Cash in Cash Return is 10%
Keep the number conservative: even though we are currently managing the property ourselves and it’s fully rented. We still want to make sure we put 10% vacancy and 10% management when we run our numbers, thus it would cash flow well after we transition property management down the road. As first time investors, we think it’s very important to keep the number conservative so we can prepare for any unexpected expenses.
Repairs / maintenance Cost: During inspection, we found out the roof and one of the furnace are about time to be replaced. We end up going back to the seller and get 10k price cut. The number still works. this is not a property we can do a BRRRR strategy on. But we decided the roof and furnace replacement is within our budget. We plan to get them done in the next 3 months.
Tenant management: Two of the three tenants are Section 8. We have to get some paper work updated with local housing authority, which is not complicated.
- Parking situation: previous landlord has never allocated the parking space, so third floor tenant put their personal staff on the parking space; the other tenant ended up parking their car on the lawn. So we painted the space, allocated 2 spaces for each units and have them understand the situation. It worked out so far! I
- One of the tenant expects us to come and pick up the check for the rent, but we said No even though the property is 15 minutes away from our house. We learn from Bigger Pocket that it’s important to establish rules and expectations with tenants early on.
Our goal is to close a similar property by the end of this year and continue to learn from Bigger Pocket podcast and books.
If you have any questions about this deal, please feel free to let me know.
Zora
