My investment portfolio was growing pretty good, and I had slightly over $500K in it. I wanted to put it to better use. I really wasn’t sure what I wanted to do. I lost out on the previous sheriff’s sale property, and did not want to work forever.
I went to a “Think Big” seminar, put on by the Learning Annex, which featured Donald Trump, George Foreman and many others. It got me thinking. I signed up for a few Starter Sessions with different vendors. You know the ones that give you a free taste, and want thousands to continue.
I was really interested in the Real Estate courses, so I signed up. It was very eye opening. I started to look further at investment property education. I learned how to analyze property, and understand what a decent return is (negative cash flow is bad). I looked up hundreds properties on line, and did a financial analysis on them as practice. I ordered several ‘kits’ from the different midnight vendors and returned them in 30 days to get my money back. I joined the local Minnesota Real Estate Investors club.
So, I started. I began researching the local foreclosures. I sent mailings and did presentations to people in foreclosure in hopes to get an investment property I could purchase. I helped many people understand the situation that they were in, but I still did not find any properties.
I did find a Realtor and started looking at foreclosures in a condominium complex close to where I lived. These were not ‘normal’ condos; the property was built for investors. All of the buildings were 4-plexes, thirty of them, 120 units total. Some of the 4-plexes were split into actual condos, and sold off. All were three bedrooms, some were one bath, some two.
As I started looking at them, I realized there was a considerable amount of work to put into them. I did the analysis, and found they were about $100K too high to make any money on as a rental. I made some offers, but I was always the low-bidder. I was close once, only off by a bit. My offer was $312K, and it sold for $316K as I recall.
I did learn just a bit after that offer. I had no ties to my Realtor, so I thought why not go through the listing Realtor. It would be what is known as a ‘Hogger’ in the Real Estate sales world. The sales person would then get a double commission, and would make every attempt to get my offer through. So I made contact with the sales person, and started a business relationship that continues to this day.
So, many of these 4-plexes in this complex were in foreclosure, buyers paid too much, and did not know how to manage investment property. It was a Section 8 neighborhood, so maintenance costs were eating up the revenues.
I was finally able to make an offer on a building that was accepted. It was a REO property, and it was bought in rough shape. The pipes were frozen as were the water heaters. I could see some of the split pipes. No appliances were in the building. I paid $316K with 25% down. It eventually costs another ~$60K to get the place up to speed.
It wasn’t a bad price, the property sold just three years earlier for $430K, and probably $100K was put into it by the most recent owners, before they went broke. It cash flowed almost $1,000 per month, and had an 8.6% cap rate, gross rent multiplier of just under 7, the debt service ratio was over 1.6, and a cash-on-cash return over 11%. If I managed it myself, it was a 14%+ return. A great deal over all; but I knew I just paid retail. I knew there were better deals out there.
I finally had another rental property, and my tenant count would double as soon I could fill it.
What thoughts did you entertain when you were buying a property, either for your residence, or an investment property?