I started this blog in March 2013, over two years after I bought my first rental property. I want to go back in time and revisit each property I bought, what it’s renting for and my current financials for each one. If you are curious what I bought and how much I spent, all my long-term rental properties will be listed here.
Be sure to check out my complete guide to investing in long term single family properties. There are links to articles on finding great deals, getting loans and starting out as an investor.
How long did it take me to buy my first rental?
I had looked for a rental property for quite some time before I bought my first one. I knew I wanted to buy a rental for years before I finally bought one. I had a hard time saving my money and finding the right property. My wife and I had spent most of our money buying our personal house as a foreclosure in 2009, and it took time to save up money for a rental. In 2010 I was finally ready to get into the rental game. I refinanced our personal residence and had the money for our first rental in October of 2010.
How did I buy my first rental property?
I saw what would become my first rental property come up for sale in the MLS at a great price. I made an offer the same day it came on the market, and I waited for an answer. It was an estate sale, but the home was in great condition and priced well. A couple of days after I made my offer, the listing agent called me and said sorry they accepted another offer! I was a bit annoyed because he never told me they had other offers and I specifically asked him to tell me if they received other offers. My original offer was $96,900, the list price was $98,900 and I would have gone higher had I known there was competition.
Mistakes are not always a bad thing and I learned a lot with my first rental
I continued to look for possibilities, but I was pretty bummed after I missed out on this house. The house I missed out on was at least $25,000 below market value and needed almost no repairs. It had 3 bedrooms, 2 baths, 2 car garage and no basement. I could easily rent it for at least $1,000 a month and get a great return on my investment. I wasn’t having much luck finding another property when the listing agent called me and said the first offer was cancelling. He said the seller wanted to accept my original offer without putting the house back on the market. I quickly accepted and we were under contract!
I learned to make sure I submit my best offer when great deals come on the market. I also learned it helps to pester the listing agent if they do something like accept another offer without disclosing to me there were other offers!
What kind of loan did I get on my first rental property?
In 2010 when I was about to buy my first rental property, I was using a mortgage broker to do my loans. He had done a good job in the past, but this was late 2010 and it was not an easy time to get a loan. I had to jump through a ton of hoops, send in bank statements for the last 6 months, explain deposits over $1,000 for 6 months and send every possible financial document I had for the previous 6 months. As soon as I thought we had final approval for the loan, the underwriter would ask for something new. I was getting frustrated and very worried I might lose this deal, because we had to extend closing for the lender. Finally, after 6 weeks they were able to sign off on the loan and I closed in December of 2010! Getting a loan through large banks is not easy to do when you are buying investment properties!
The loan terms on my first rental property
My mortgage broker convinced me to do a 75% loan to value ratio on this property, because it had a slightly lower interest rate. I could have put only 20% down and in hindsight I should have taken the higher rate for putting less money down. I was able to get a 30 year fixed rate mortgage because I did not have four mortgages at this time. My payment on the property was $481 including taxes and insurance. I had my contractors do the minor paint repairs, had the home cleaned and put it up for rent. I asked $1,050, advertised the house in Craigslist and put a for rent sign up. We had a few calls immediately and wound up renting it to a nice couple in February of 2011.
Part of my deal with the renters was I would put in the yard and sprinkler system in the spring when it got warm. I did that in May and they were very happy with the results. I always make sure all my rentals have sprinkler systems, otherwise the renters will not water the lawn and it will die.
My costs on my first rental property
Here is a breakdown of my costs one the house. These are not exact but very close.
$24,225 down payment
$2,500 closing costs
-$2,000 seller credit for closing costs
-$2907 my commission as buyers agent
$500 utilities while vacant
$3,000 repairs the first year
$ 25,468 Total cash into the house the first year.
$11,550 Rent collected through December 2012.
$5,300.79 in mortgage payments, taxes and insurance
$6,249.21 profit in first year.
24.5% cash on cash return in my first year!
These numbers do not factor in the tax savings, appreciation, instant equity that was built-in when I bought the home and equity pay down.
Today the home is rented for $1,100 a month (actually 1,300 in 2015), I have had three different tenants because two of them were transferred out-of-state to new jobs. I was able to raise the rent and collect a releasing fee as well as not have any vacant months during these transitions! I have to admit I have been very lucky. I have spent less than $500 on maintenance in the last two years, and this home just appraised for $160,000 (January 2013). Since this was my first home, I decided to pay all my extra cash flow from my other properties into mortgage pay down on this property. I owe $5,000 on the mortgage now (Feb 2013) and I will be paying off the home in February!
Update June 2014
I paid off this property earlier in the year! I also had to rent the home again earlier this year because the current tenants were transferred out of state. However I did not have any vacant months again, and I was able to raise the rent to $1,300 a month! You may notice I did not count any maintenance or vacancies when I first bought the home. I have learned over the years it is very important to account for maintenance and vacancies and my returns may not have been as high as I assumed!
This was a great first rental property. I had to put very little money into the home, and it has been rented the entire three years I have owned it. I am sure it is under rented right now at $1,100, but the tenants are great and I don’t want to lose them. Remember I have been very lucky not to have any vacancies or much maintenance on this home. I would always count on having some vacancies and repairs on your rentals. Here are the details on number two.
For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.