Last week, May 26th, we finally closed on our first home and investment property! It’s been a wild past 30 days from trying to figure out how much to bid on a HUD home, dealing with the township and utility company, and then when we thought we were in the home stretch, finding out the place had gotten broken into. But it was all worth it and we’re excited about the next steps.

The Troop and I have a goal. We want to build a long-term buy and hold real estate portfolio that will eventually fund our early retirement. And this first property is finally kicking us off. I’ve been researching and reading and trying to learn as much as possible about real estate before closing on a deal. I’ve let analysis paralysis take over. And then one day, I had enough. I was all talk and no walk. So I committed to closing on a property in 2017.

And we finally did it!

Enough with the inspirational non-sense right? You’re here for the numbers. So let me lay it out for you.

As you know, I’m not a risk taker. So we decided to house hack this property so we aren’t juggling our own mortgage/rent with a another mortgage. If we don’t get a tenant in right away, it won’t kill us financially. 

Property #1 – The Numbers

List Price: $124,000

Purchase Price: $117,341
(How we came up with this offer price)

Taxes: $7,550

Down Payment: $23,468 (20% down)

Interest Rate on 30 Year Mortgage: 4.875%

Mortgage Loan Amount: $93,945

Closing Costs: $4,000 ish

Estimated Rehab: $35,000

Property Monthly Expenses

Fixed Expenses

Home Mortgage: $497.16

Property Taxes: $629.16 

Home Insurance: $105.83

Water/ Sewer: $60

Total Fixed Expenses: $1,292.15

Expenses For Reserves

6% Vacancy: $135

7% Maintenance and Repairs: $157.50

8% Cap Expenditures: $180 

Usually, I analyze with 10% cap ex, but since the home has a new roof and we will be installing new hot water heaters, new HVAC systems and new appliances, we’re comfortable with 8% for reserves.

10% Property Management Fee: $225

We will not be hiring a property management team but one day we might and so we account for it.

Total Reserve Expenses: $697.50

Total For ALL Expenses: $1,989.65

Income

Even though we will be house hacking and living in one of the units, we analyzed this property as if we would be renting out both. So, below are the numbers as if it was a full investment property with both units rented to tenants.

Unit 1 (2 Bed 1 Bath): $1,275 / month

Unit 2 (1 Bed 1 Bath): $975 / month

Total Income: $2,250 / month

Income- Expenses = Cash Flow

There are two types of cash flow. The first is known simply as cash flow and the other is free cash flow. Basically, cash flow is the amount after only deducting fixed expenses and not deducting your reserves such as vacancy and cap ex since they are not reoccurring expenses. Free cash flow is the amount after you have accounted for all possible expenses. Fixed and reserves. So the money is free and clear. Pure profit.

Cash Flow

$2,250 (Income) – $1,295.15 (Fixed Expenses) = $954.85

Cash Flow: $954.85

Cash on Cash ROI: 18.42%

Purchase Cap Rate: 14.88%

Free Cash Flow

$2,250 (Income) – $1,295.15 (Fixed Expenses) – $697.50 (Reserve Expenses) = $257.35

Free Cash Flow: $257.35

Cash on Cash ROI: 5.02%

Purchase Cap Rate: 7.75%

Since I will be managing this property ($225/month), our total monthly free cash flow, accounting for all expenses and putting reserve money aside for future expenses, is…

$482.35!

That’s $5,788.20 a year!

That’s free and clear money. Money that we can use for travel, to buy nice things, or spend at fancy restaurants.

But we won’t.

Because we have a goal.

So we will be hoarding that money away to save for property #2!

Property #1 – Pictures and Plans

                      Exterior

The Front

Details

• Up/down duplex
• Newer roof
• Aluminum siding

Planned Rehab

• Paint exterior siding one color
• Paint concrete stairs and foundation
• Fix and replace cracked sidewalk slabs
• Landscaping

Front Porch

Details

• Both units have private entrance

Planned Rehab

• New exterior and storm doors.
• Rip up carpet and paint concrete
• New light fixtures

The Side

Details

• Single lane driveway
• One car garage
• Separate entrance to basement

Planned Rehab

• The garage has a cracked foundation. Either tearing it down or fixing it.
• New storm and exterior side door
• Landscaping

The Back

Details

• Shared backyard
• Fully fenced

Planned Rehab

• Landscaping

Unit 1

The Living Room 

Details

• Hardwood floors
• Open to dining room
• 2 coat closets

Planned Rehab

• Take down or cover wood panel wall
• Skim coat cracked plaster walls
• Paint walls
• Replace ceiling fan
• Replace/fix windows
• Paint closet doors
• Take out radiators and AC units (installing all new green forced heat and central AC)

Four Season Sun Porch 

Details

• Lots of windows
• Off the living room

Planned Rehab

• Demo wooden closet
• Take out radiator
• Install new vinyl flooring
• Skim coat cracked plaster walls
• Paint walls
• Fix/replace windows

The Dining Room 

Details

• Hardwood floors
• Open to living room and kitchen

Planned Rehab

• Skim coat cracked plaster walls
• Paint walls
• Install new chair rail
• Replace chandelier
• Replace/fix windows
• Take out radiator

The Kitchen

Details

• Newish cabinets
• Wood flooring
• Laminate countertops

Planned Rehab

• Update appliances
• Paint walls
• Replace window
• Replace washer dryer (located on other wall)
• Replace/fix windows

The Bathroom

Details

• Shower / tub combo
• Linen closet

Planned Rehab

• New shower/tub insert
• Demo header above bath
• New vanity set
• New floor tile
• Take down wall tile and sheet rock
• New light fixtures
• Paint walls

Master Bedroom

Details

• Hardwood floors throughout
• Large closet

Planned Rehab

• Skim coat cracked plaster walls
• Paint walls
• Install new closet doors
• Take out radiators and AC units
• New ceiling fans
• Fix/replace windows

Second Bedroom

Details

• Hardwood floors throughout
• 2 Smaller closet

Planned Rehab

• Skim coat cracked plaster walls
• Paint walls
• Install new closet doors
• Take out radiators and AC units
• New ceiling fans
• Fix/replace windows

Unit 2

The Living Room  

Details

• Hardwood floors
• Closet
• Small

Planned Rehab

• Knock down wall on the right to open it up to the kitchen
• Open up doorway into the hallway
• Take out radiator (installing all new green forced heat and central AC)
• Skim coat cracked plaster walls
• Enclose closet opening (Moving opening into the kitchen
• Paint trim and walls
• Expose brick chimney

The Kitchen / Dining Room 

Details

• Barely no existing kitchen except the sink
• Pantry closet
• Large windows

Planned Rehab

• Install new white cabinets
• Install new stainless steel appliances
• Install new flooring
• Shorten windows all the way to the right so cabinets will fit underneath
• Remove middle window to accommodate stove/range/microwave setup
• Remove radiator
• Enclose pantry to make room for the fridge
• Wall will be removed to open it up to the living room (Bottom picture, wall on the left)
• Replace light fixture
• Paint walls
• Create closet door opening

The Bathroom

Details

• Tub/shower insert
• Otherwise standard bathroom

Planned Rehab

• Clean up shower/tub insert
• Install new toilet seat
• Install new sink and vanity
• Remove radiator
• Install new medicine cabinet/mirror
• Install new flooring
• Fix/replace window
• Paint walls

The Bedroom

Details

• Walk-in closet
• Hardwood floors
• Three windows

Planned Rehab

• Fix/replace windows
• Remove radiator
• Skim coat cracked plaster walls
• Paint walls and trim
• Replace ceiling fan

So that’s the property! Our current plan of attack is to bring in someone to work on the first floor unit while we work on our second floor unit. We already have someone lined up to fix the sidewalk, paint the house, and install the HVAC. Off to a good start so far!

Stay tuned.

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