First Rental Property


My wife and I are in the process of purchasing our first rental property! Here is how we have done it step by step, and what we are going to do next!

Step 1: Identifying our mark
et

The first thing we wanted to do was identify a market that we believe is emerging as opposed to emerged. We were looking at properties in our town and noticing they were priced higher and higher than we believed they were worth, then selling over asking price in a matter of days. Since we are going for a buy and hold investment strategy, we did not care for these high demand quick selling houses. Instead, we wanted to find a market that needed more rentals and had markets that typically foster tenants instead of homeowners. In a neighboring town, we found an area with a great downtown with shops and restaurants, an undergraduate university with a developing graduate program, a hospital, multiple large churches, and plenty of businesses. 

Step 2: Secure Private Lending

We reached out to family that has done very well in real estate and asked for mentorship. They kindly accepted and have been coaching us every step of the way. When we told them about our market we found, they offered to give us a hard money loan. This is by no means a hand out. We set an interest rate of 7.5% and agreed on a two year term. 

Step 3: Find a House

We started looking all over the place for a good property. There were plenty of small fixer uppers and some nice houses that looked like they just needed some love. For our first property, we were looking for as low risk as possible and as high of cashflow as possible. We found a cute house down the street from the University that had just been completely renovated. The seller had purchased the home for $17k in March and listed the property for $115k in January. He had completely stripped the house to the studs and rebuilt from the ground up. The house was perfect for a rental. It was only 1200 sqft, 3 bedrooms, and 2 baths. It would require no rehab to start renting. We figured out we could buy the house with the hard money loan and then refinance at 75% and cover the other 25% at refinance. If we set the rent at $1250/month (pretty average for the area) we could cashflow about $400/mo until we refinanced. The $400/mo would contribute to our 25% at refinance. This is not the BRRRR method by any means. 


Here is what the house looked like before the rehab!

Step 4: Place an Offer

We placed an offer of $107k cash with a 15 day close. They accepted the next day. This meant if the home appraises for $107k at the point of refinance, we would owe about $26k at the point of refinance and get a conventional 30 year on the 75%. This will then increase our cashflow to about $650/mo and will last us for years since it is so well rebuilt. We got an inspection and had the seller repair all the minor findings. 

We close in 5 days and we have many things to do! Including finding a tenant! I will post updates as they occur!


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