I’ve spent years and years thinking about doing this and I’ve finally done it. I’m buying my first rental property.
I’m writing this just a few days after it happened so I can document this entire process in real time. I’ve written previously on how (and why) I set up my LLC, obtaining financing and why now is the time to dip my toes into real estate.
As you read along I’ll cover some of the criteria this house needed to meet, the process of putting in the offer and the projected cash flow for this new house.
If you’re interested in real estate I hope you’ll join me along this journey!
The criteria for buying my first rental property
As an investor there really wasn’t a laundry list of things I was looking for. Off the top of my head:
- the price had to be no more than $90,000
- Ideally no basement
- Close to the major city in my area
The house I purchased was right at the top of my budget. Thats not a huge issue because of my unique situation. My future renter could help me pick out the house and knew their rent would be based on purchase price.
While I’m just buying my first rental property basements don’t seem like a great idea to me. So much opportunity for things to happen especially when I wouldn’t be there to check on things.
We have a sizable city in our area (that I live in). I wanted the house to be reasonably close to that. If my current renter ever fell through this would allow me a large number of people that would want to rent.
The process of buying my first rental property
These were important because, in my area, you must act fast if you want to buy a house. The house I ended up purchasing was on the market for less than twelve hours and ended up having four offers.
The first offer the home owner had had an expiration time. The deadline was 30 minutes after we submitted our offer!
While my offer was the cleanest (meaning less hassle for the seller) I think the differentiator was the letter I wrote with the offer. It explained who was going to be there, a little about their situation and why they were excited to live there.
It was a crazy night of:
- look at the home
- scramble to put in an offer
- get an accepted offer
all of that happened in the span of 3 hours!
Projected Cash Flow
While I’m certainly new at this whole rental property thing, I’m a numbers guy.
I’d run projected cash flow on every house that showed promise. It was my goal to have a good idea of what the future looked like well before we even talked about putting in an offer.
The sheet I’m working off of came from BiggerPockets. It was a few years ago so I’m not sure if this is still something they give away.
My key takeaways from the cash flow statement:
- I’m on a 15 year note and can still cash flow
- My rent follows the 1% rule which gives me some comfort
- My cash on cash returns (CCR) are solid
The primary thing I need to remember is that if this were a typical rental scenario (where I’d need to include vacancy & property management) I’d actually lose money each month on the property.
Overall, I’m really excited to be dipping my toes into real estate and buying my first rental property. I’ve wanted to do it for quite some time and I hope this is the first of many.