I purchased my first investment property in January of 2022. I began thinking about real estate investment as a possibility for my family in the winter of 2019. I was looking at Zillow weekly. I saw a place on a lake that I wanted to look at in person, and I met my first realtor(outside of my personal home a decade earlier) through requesting to see that property. I did not end up purchasing then, but I continued to look at Zillow every week. In fact, when I saw this SNL skit, I could totally relate. As I sit here writing this article, I realized my thoughts on real estate were taking hold before 2019. I was helping my parents manage two four-plexes they had and so was exposed and learning how to manage properties for several years before I decided to purchase a property. I began listening to Paula Pant’s podcast, Afford Anything and signed up for her course, Your First Rental Property during 2021. I took a leap on this course, as it was over $1000 and I had not spent that much on a course after college. The course is well worth the investment, I learned a lot and I still use the tools I gained from the course. Also, every year when the course runs again, I’m able to take it along side the new participants and there are monthly calls I can participate in for questions and interaction. The information is available with less expense, I’ll put some suggested podcasts, facebook groups, and books at the bottom of this article.
After the shut downs following March 2020, the real estate market was frozen for a few months, as we all reacted to regulations surrounding Covid. In the Summer of 2020 and for the next two years, the real estate market took off without looking back. It was a sellers market, multiple buyers were putting offers on property above asking. In the Summer of 2021 I looked at a few multi family homes and made offers on a few and was beat out each time. I put an offer on the duplex shown in the picture above and was beaten by a higher offer. Oh well, I figured, it will happen when it happens.
Me with my realtor and the keys to our first property.
In the fall of 2021, the duplex above came back on the market for a higher price than it was listed at over the summer. My husband and I had already toured half of it and decided to put an escalating offer on the duplex. Our offer was accepted for about $5,000 more than asking price. The duplex turned out to be a triplex, as one side of the garage had been turned into an efficiency unit 5 years prior. The previous owner had been renting one side of the duplex for $1700 and the landlord was paying for gas and electric. The efficiency unit was being rented for $650, but it didn’t have running water. It had a large storage tank to draw water from, filled from a hose. The current renter mentioned how sometimes during the winter the outlet he got water from froze up. Inconvenient, to say the least.
I used some of the excel worksheet tools I had from the course to run my numbers under different scenarios. The scenario I put in with conservative income, put me at from 5-12% cash on cash and 5.5-9% cap rate. I liked these numbers. I had an inspection done and various items were fixed. The septic and leach field failed inspection and so were slated to be replaced in November and we would close in December. November leaked into December with the work still to be done, as ice and snow covered the ground. December became January and we finally closed, even though the leach field and septic tank had still not been installed. I was able to lock in the interest rate from December, 4.2%, and soon after I closed, the rate was climbing to 5% and then the fall saw 6% and in 2023, we saw 7% and even 8% interest rates for investment properties. I feel lucky to have locked in the lower interest rates.
During the planning phase I had estimates and thoughts on what renovations I wanted to do on the triplex. I estimated we would need to put in $40,000 for renovations, and that was after the $95,000 I brought for closing costs and down payment. The money we were using came from our taxable brokerage that had grown in the three years since we opened it in Dec. 2018 and also the sale of our motor home. My list of fixes on the duplex included new flooring, new wall/ceiling paint, dry wall fixes, painting the kitchen cabinets and bathroom vanities, and some other odds and ends. These came out to about $20,000. We were able to rent both sides of the duplex in April 2022. The efficiency came with a renter and his lease was up in May. I decided I would want running water if I lived there and so we found a contractor who saw a way to get running water to the efficiency. We also had the unit re-taped, mudded, textured, painted, and replaced the carpet and lvp . My water guy talked me into getting an on demand water heater. What I didn’t realize was by getting a natural gas on demand water heater instead of the electric water heater, I went over the BTU’s for the unit and had to repipe all the natural gas pipes from 3/4″ to 1″ pipes. We paid for the natural gas utility to split the duplex from the garage/efficiency. I added insulation to the attic area. All in all, we went $5,000 over budget for $25,000 on efficiency related items. We added an all-in-one washer and dryer to the unit. Over the summer I decided to furnish the unit and found most of my furnishings from a family moving state and also Amazon shopping. By August we were ready to rent out the unit.
Our fixes came out to $45,000. There were many mistakes made on my part. We worked with several contractors and a few times I paid the contractor before inspecting the work. What I found is it is very hard to get a contractor to come back to fix something after they have been paid. A final inspection of work is vital before paying off the work. While renovating the efficiency I had the experience of evicting my first tenant, who stopped paying after month one. After the eviction I was contacted by an insurance company rehousing division. I would do a deal like that in a heartbeat, as the insurance companies are willing to pay more as the lease is shorter. This person ended up staying for 10 months. I was able to find a renter for the efficiency. When I was running my original numbers on the property, I used $1650 for each side of the duplex and $650 for the efficiency unit. I decided I would be okay if I was making $3950 monthly. Our mortgage, taxes, and insurance are about $2,000/month. I rented out the duplex for $1700 each side, garage for $150, and the efficiency unit for $1400, bringing our monthly gross to $4,950. The actual amounts we bring in are different as we also have pet fees and have some shorter leases that bring in more money, but we are covering utilities.
I am very pleased with our first rental property. I read a book called Profit First, talking about paying yourself first, and the premise is that you break up the money coming in between different accounts. I have an operating expenses account, a taxes account, an owner’s investment account, and an account for cap ex, vacancies, mgmt fees. I have target percentages I use to fund these accounts each month. What actually goes in can vary as expenses, vacancies come up. 10% tax account, 20% capex/vacancies/mgmt account, $1,500 in the investment account, and everything else in the opex account. I have been transferring the investment account to M1 brokerage to save up for the next down payment.
Some of the expenses that have come up are tree cutting, roof stops installations, gutter installations, new appliances, furnace cleanings, filter replacements, and snow plowing. Currently we have three home warranty plans that are supposed to help cover when appliances break down. This costs about $55×3 every month. For 2021, we broke even from the payouts against our premium. For 2022 we have paid more in premium than has been paid out. I must say I do think about self insuring and saving that $162, but as of now we are keeping the warranty plans. Here is an updated list using more current numbers:
It’s been almost two years, we have had an eviction, a tenant in jail, a very difficult clean out from a dog that was not taken care of and let out at regular intervals, but all in all, I’ve enjoyed the experience so far. In the renovations stage I surprised myself with how handy I was becoming. I have changed out toilet valves, painted, caulked, added insulation to ceilings, learned to cut trim, wired in automatic moisture sensors and replaced lighting systems. The things I learn probably take four times longer to do than an experienced person, and my uncle was shaking his head a little as he examined my trim cuts, but it has boosted my confidence to realize I can do these hard things. The university of You Tube has been instrumental in walking me through all the things. I have also learned it is worth it to hire professionals at times. I work a W-2 and so my time is limited. Professionals can be faster, and have the knowledge, for example, to fix the washing machine, or know when it is better to purchase a new one. The market has changed, as interest rates soar. There is not much inventory on the market currently. I am saving up for a deposit on our next rental investment. Besides the high interest rates, this is a good time to buy as there isn’t much competition. I’m keeping my ear to the ground for off-market properties or pocket listings. We are just getting started.
Suggested Sources for learning more about real estate investment:
Course: Your First Rental Property from Paula Pant, Group Home Riches
Podcasts: Bigger Pockets Rookie, Afford Anything, Racking Up Rentals, Thanks for Visiting, The Short Term Show, The Real Estate Investher Show, Real Estate Investing for Women, Group Home Riches, Get Rich Education
Books: The Book on Managing Rental Properties, Rich Dad Poor Dad, Set for Life, The Small and Mighty Real Estate Investor, Profit First, Every Landlord’s Tax Deduction Guide, The Book on Tax Strategies for the Savvy Real Estate Investor, Real Estate by the Numbers, 30-Day Stay, Short-Term Rental Long-Term Wealth, Wealth Without Cash
Facebook Groups: Real Estate Rookie, Lady Landlords, The Landlord’s Almanac, Landlord Round Table
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