Rental Property #1

Well every­body, it’s offi­cial.

I am a home­own­er! Per­haps more impor­tant­ly in this con­text, I’m also now a land­lord!


Alright, alright, alright. Here’s the num­bers and infor­ma­tion on my very first rental prop­er­ty!

  • Stats: Triplex
    • Unit #1: 1 bed­room, 1 bath
    • Unit #2: 1 bed­room, 1 bath
    • Unit #3: stu­dio, 1 bath
  • Size: 2,100 square feet
  • Style: Con­ver­sion
  • Con­di­tion: Good
  • Built: 1910
  • Pur­chase Price: $85,000
  • Repairs: est. $15,000 (!?!?)
  • Total” Acqui­si­tion Cost: $100,000

What does that gross?

  • Rental Income: Unit #1: $600
    Unit #2: $500
    Unit #3: $385 (when I’m not liv­ing in it)
  • Does it Meet the One Per­cent Rule? Obvi­ous­ly.
  • Total bor­rowed— $77,647
    • Mort­gage: $76,500
    • VA Fund­ing fee: $1,147
  • Down pay­ment: $8,500 (10%)
  • Mort­gage: $359.60 per month
  • Tax­es: $248.92 per month ($2987/year)
  • Insur­ance: $96.91 per month ($1162.92/year)
  • Vacan­cy: $88 per month ($1056/year) at 92 per­cent occu­pan­cy, $1100/mo rent
  • Man­age­ment: $110 per month ($1,320/year) at 10 per­cent fee, $1100/mo rent
  • Repairs/Maintenance: $100 per month ($1200/year) because it’s an old house that needs some TLC
  • Total Expens­es: $1,003.43 per month

Cash Flow: $386.50 per month, or $4638 per year

Cap Rate$4,638 / $100,000 = 4.64 per­cent

WTF, Gwen!? You’re doing all this work for only $300 a month? A cap rate of 4.64%?! That’s a ter­ri­ble deal! I thought your num­bers were way bet­ter than that!

Woah. Easy. Take a deep breath.

I’ve run the num­bers for the first year where I will be liv­ing free of cost. The unit I’m occu­py­ing pre­vi­ous­ly went for $385/mo. That’s $4,620 not leav­ing my pock­et, but also not enter­ing my pock­et because I can’t rent it out. If I run the sce­nario above includ­ing my stu­dio unit, the num­bers get bet­ter.

Cash Flow: $740.66 per month, or $8,888 per year

Cap Rate: $8,888 / $100,000 = 8.89 per­cent

8.89% > 4.64%

I guess those are decent num­bers then.… so how did you find this income pro­duc­ing prop­er­ty?

My city is split in the mid­dle. I chose to focus on the west­ern half only. Of that west­ern half, I focused on just a few zip codes. I start­ed watch­ing the list­ings as soon as I knew I’d be mov­ing to the area. This helped me get a feel for the local mar­ket and let me see what comps were going for. Once I found a real­tor, he added my para­me­ters to a pro­gram that spit me an email every time a new prop­er­ty came on the mar­ket that met my require­ments.

My require­ments for a prop­er­ty were:

  • met the 1% rule
  • good shape
  • at least one unit emp­ty
  • move-in ready
  • no pool or oth­er time/resource inten­sive land­scap­ing

I also checked out the local crime sta­tis­tics on the gov’t web­site and Tru­lia to make sure the area wasn’t rid­dled with crime. Noth­ing more than pet­ty crime in the area, so we’re good there. I will just have to remem­ber to lock my car doors (which I do any­ways).

I would love to share pho­tos, but most of the prop­er­ty is already rent­ed! To pro­tect my tenant’s pri­va­cy, I’m only going to post the ones I took of the out­side, my unit, and the com­mon areas. Note also that these are very much the before pic­tures. I have one 8 mil­lion or two small things to update. It’s going to be gor­geous when I’m all done though!

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I see you not­ed the con­di­tion as good.… can you explain more about that?” Absolute­ly. Thanks for ask­ing!

For a house that’s 107 years old, she’s in pret­ty great shape! The roof was redone in 2008 and looks great. The foun­da­tion is also in good shape for being a bunch of rocks stacked on one anoth­er. It’s every­thing else in between the roof and foun­da­tion that needs some TLC.

Ok, that’s not fair. More stuff is fine and doesn’t need atten­tion than the amount of stuff that does. But boy howdy, the stuff that needs some atten­tion will be a doozy. I need to redo the gut­ters, replace rot­ten wood­en exte­ri­or boards/shakes, paint every­thing, take a tree limb down, redo the back stairs, and fin­ish the attic.

Of those items, the back stairs and fin­ish­ing the attic can wait. I will have to do the back stairs next year. Fin­ish­ing the attic.….. I’m not sure that will hap­pen. It’s unnec­es­sary. The stu­dio works just great with­out it. I want to fin­ish it so I can have some more space beyond the 12′ x 13′ room I have now. We’ll see. Depends on if I can do it DIY or hire my friends to do it on the cheap for me.

Some of the exist­ing fea­tures of the house will need to be replaced as well. Every­one who’s looked in my bath­room has blanched at the state of the toi­let. It works, and doesn’t leak, so I don’t care. But, it will need to be replaced before I get new ten­ants in it.

Same thing with the stove. I’m pret­ty sure it was around in the Carter admin­is­tra­tion.

The wash­er and dry­er in the unit down­stairs will also need replaced at some point. The cur­rent ten­ants have insist­ed the wash­er and dry­er there now work just fine, but if they ever leave I’m replac­ing them.

One day.…. one day this house will be restored to her for­mer glo­ry and I will be so hap­py. Until then, I’ll just tack­le one thing at a time!

Shout out space:

Thank you SO MUCH to the fol­low­ing peo­ple for all the encour­age­ment, inspi­ra­tion, and prac­ti­cal advice. I lit­er­al­ly could not have done it with­out these amaz­ing folks behind me. I high­ly rec­om­mend read­ing all of their stuff on real estate, as this is every­thing I used to find and buy my prop­er­ty. (and Big­ger­Pock­ets. Can’t for­get them!)

Paula Pant @ Afford Any­thing: My OG Real Estate inspi­ra­tion
Chad Car­son @ Coach Car­son: Super use­ful posts on RE from a guy who owns tons of rentals
Miss Mazu­ma @ Miss Mazu­ma: Excel­lent cau­tion­ary tale, super use­ful advice on the whole process and small liv­ing
Zeona McIn­tyre @ Zeona McIn­tyre: Great advice dur­ing the inspec­tion peri­od!
Clau­dia @ Two Cup House: Amaz­ing advice on small liv­ing
Guy­on­Fire @ Guy­On­Fire: Had real­ly great advice on the pur­chase process, small liv­ing, and land­lord­ing!

And last but not least, Julie from Mil­len­ni­al Boss for being a calm­ing influ­ence and will­ing to let me vent to her in a call.

Thanks for read­ing! Any space-sav­ing tips on down­siz­ing into a stu­dio apart­ment?!


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43 thoughts on “Rental Property #1

  1. The house looks great! Lots of char­ac­ter. I nev­er remem­ber to think about all the oth­er costs asso­ci­at­ed with own­ing a house. The list just goes on an on…I am curi­ous about why you chose to use a PM com­pa­ny when you will be liv­ing on site (I would have done the same, I just won­der what your rea­son­ing was). Also, do you know why it is so cheap? 10% seems weird­ly low, and it also seems to be the nor­mal rate. How do the com­mu­nal areas work, like the kitchen? Do the ten­ants get along?

    • I am liv­ing on site and man­ag­ing it for now. The PM fee goes to me right now, but will even­tu­al­ly go to some­one else when I get enough properties/move out.

      Each unit has their own kitchen and bath­room. The only real com­mu­nal areas are the stairs and porch­es.

  2. If you didn’t put 20% down, does that mean you’re pay­ing PMI on the house? That insur­ance cov­ers the bank, but comes out of your pock­et until you (gen­er­al­ly) get 20% of the house val­ue paid off.

  3. You can call me any­time! So excit­ed for you and can’t wait to fol­low along on this prop­er­ty (and oth­ers). I think you just passed 99% of peo­ple who are inter­est­ed in real estate but haven’t actu­al­ly secured their first prop­er­ty. Great work! Curi­ous, is the attic attached to the stu­dio? How do you get up to it?
    Julie @ Mil­len­ni­al Boss recent­ly post­ed…10 Ways to Trav­el The World With­out Quit­ting Your JobMy Profile

    • The stairs to the attic are in the stu­dio. So if I fixed the attic up, I could charge more for the stu­dio even though it wouldn’t be up to code and total­ly shouldn’t have beds up there (since there is only one point of egress and not two).

  4. Con­grats Gwen! Thank you for the shoutout. I believe this prop­er­ty will serve you well as your first house hack/investment. Can­not wait to see where real estate takes you! (Hint: it starts with F and ends with I).

    Keep up the great work

  5. Yay, con­grat­u­la­tions! Looks like you’re well on your way. 🙂 Everybody’s got­ta start some­where, right? How long do you think you’ll live in your stu­dio? Smart idea liv­ing in the cheap­est apart­ment in the build­ing, too–gotta snag that cash flow!
    Mrs. Picky Pinch­er recent­ly post­ed…What A Fru­gal Week­end!My Profile

    • Thank you! My plan for now is to live here for a year. Since I got the VA loan, I have to live in it for a year before I can move some­where else. As for choos­ing the stu­dio.…. it was the only one open when I bought it!

  6. Con­grat­u­la­tions, Gwen! That’s excit­ing stuff… though I will say I’m a lit­tle jeal­ous! 🙂 I’m look­ing for a third prop­er­ty and haven’t been able to make one work with my num­bers for a few months now. 🙂

    Smart move plan­ning for prop­er­ty man­age­ment fees out of the gate. Even if you man­age it your­self now, it’s good to have that in the num­bers for down the line. Con­grats on your invest­ment!

    – Jim
    Jim @ Route To Retire recent­ly post­ed…Four 401(k) Mis­takes That Can Crush Your Retire­ment Sav­ingsMy Profile

    • Thanks Jim! My area of the Mid­west is pret­ty low cost. I could throw a rock and hit a house that would meet the 1% rule (or I could, if I wasn’t afraid of hit­ting a win­dow lol).

  7. Con­grat­u­la­tions and good luck! The prop­er­ty is ridicu­lous­ly cheap. Our small­er duplex cost more than 5x. The house looks awe­some. The stair case looks almost the same as our duplex. That square post (what ever it is call) looks exact­ly the same.
    I think you’re under­es­ti­mat­ing the repair and main­te­nance. Old hous­es like that always need a lot of work..

    • Ah the dif­fer­ence between the Mid­west and Port­land. Don’t wor­ry, the high cost of liv­ing in Port­land com­pen­sates by hav­ing a lot to do there. Not so much here :/

      It’s entire­ly pos­si­ble. After the mon­ey I’m sink­ing into it this year, it *should* be good to go for awhile. Gives me time to save up for the next thing!

  8. This is great! What a fan­tas­tic start. And yeah. Mov­ing to a small­er place is painful at the begin­ning. Then you don’t even notice it.

    • Def­i­nite­ly has some draw­backs. I got wok­en up at 345 by one of the ten­ants slam­ming the out­side door this morn­ing -.-

  9. Hi Gwen, Con­grat­u­la­tions!

    Though, I didn’t quite fol­low your num­bers. I see the total month­ly expense of $1003.43. But the cap rate with and with­out you liv­ing in were hard­er to fol­low:
    Total rents minus your unit = $1,100 — $1,003.43 = $96.57 ~ 1.16% cap rate
    Total rents (if you include your unit) = $1,485 — $1,003.43 = $481.57 ~ 5.78% cap rate
    Did I miss some­thing?

    My wife are work­ing on pur­chas­ing our first property/duplex and it is fas­ci­nat­ing to see the dif­fer­ences in the prop­er­ty mar­ket!

    • I actu­al­ly did the same cal­cu­la­tion as you until my friend remind­ed me cap rate is before debt ser­vice. It’s a met­ric meant to com­pare returns with­out lever­age involved, so I had to run the num­bers with­out my mort­gage in it. Every­thing else stayed the same.

  10. This is great Gwen! I am clos­ing on my first rental invest­ment and I plan to release the num­bers soon! It’ll be inter­est­ing to com­pare our two invest­ments — my sin­gle fam­i­ly and your mul­ti-fam­i­ly. I searched for a mul­ti unit here but unfor­tu­nate­ly they are not com­mon in my city :/
    CentsOK recent­ly post­ed…On the Hunt for a Mort­gage LenderMy Profile

    • My pre­vi­ous town didn’t have an abun­dance of mul­ti fam­i­ly prop­er­ties either. Deals were SO much hard­er to find there. I’ll be inter­est­ed to see how your num­bers work out!

  11. Looks like a fan­tas­tic deal! This is *exact­ly* how I would approach it if I lived in the land of afford­able real estate, too. I’d love to house hack! When the inevitable annoy­ances of ten­ants demand­ing things that aren’t in the lease, being late on rent, and cap­i­tal expens­es hit, just repeat to your­self, “I’m liv­ing here for free… I’m liv­ing here for free… I’m liv­ing here for free!”

  12. Con­grats Gwen! Very excit­ed for you. And nice that you were able to find a rea­son­ably price prop­er­ty with some good return met­rics even con­sid­er­ing you’ll be liv­ing in one of the units.

    Lis­ten­ing to Chad Car­son on the Mad­FI pod­cast was good inspi­ra­tion a month or so ago. Part of me wish­es I would have done a live-in rental unit to help get oth­ers pay the mort­gage and get a return, but those days may be behind me. Even­tu­al­ly I’d like to have some rentals though.

    Hap­py for you and wish you the best of luck.
    The Green Swan recent­ly post­ed…Our Retire­ment LifestyleMy Profile

  13. Con­grat­u­la­tions Gwen!

    Now I’m going to take myself off to a cor­ner to weep qui­et­ly for a bit about the fact that my house while small­er in terms of square footage cost about 10x.

    About liv­ing in a stu­dio: I did that for over a year (but not quite two) in San Fran­cis­co. Here are some tips:

    1. Be tidi­er than you have ever been before. A clut­tered stu­dio, with no way to escape from the mess with­out hun­ker­ing down in the loo, is hell.

    2. I hung a rack from the ceil­ing of my kitchen, and anoth­er shelf with hang­ing space on the wall. This gave me plen­ty of space for kitchen stuff, and ensured that I couldn’t use lack of kitchen space as an excuse for not cook­ing.

    3. I used Ikea blinds that I hung from the ceil­ing to enclose my sleep­ing area and make it seem sep­a­rate and very, very cozy.

    4. I had an Expe­d­it Ikea shelf that was about 6 feet long and 6 feet high and divid­ed into 25 cubes. So. Much. Stor­age.

    5. Use a shoe rack that hangs from the back of a door.

    6. Be bru­tal in your purg­ing of mate­r­i­al goods.

    7. Spend a lot of time out­doors explor­ing your city.
    Mrs. BITA recent­ly post­ed…Are We There Yet? A FIRE Cal­en­darMy Profile

  14. Yeah! Thanks for the shout out…I can’t wait to get my grub­by hands on that effi­cien­cy!! We will make every­thing work effi­cient­ly. 😉 Love all Mrs BITAs ideas — she’s a smart cook­ie!! I have 10 years stu­dio expe­ri­ence and if any­thing is true it is her #1. Get rid of all non essen­tials that don’t make you hap­py. All the crap we col­lect that has no real mean­ing. Doing that alone will help to be able to store the things that tru­ly mat­ter. I can’t wait to come see it in per­son!!
    Miss Mazu­ma recent­ly post­ed…Shift Your Per­spec­tive & Cre­ate New HabitsMy Profile

  15. Con­grats — I know Paula wrote some great arti­cles on kitchen rehab­bing for cheap so that may be the next step while you’re liv­ing in the stu­dio. You can always rehab it and then move into the next one and do the same thing. I didn’t see util­i­ties on there for the CF state­ment — on my mul­ti-unit prop­er­ties I’m respon­si­ble for sewer/electric/etc so just want to make sure you’re includ­ing those in there. But cap rate hon­est­ly looks great regard­less and now you’re liv­ing rent free!

    • The kitchen is fine, now that the oven is there. I added a kitchen island on the oth­er side so I have counter space and a draw­er for uten­sils!

      Good call about the util­i­ties. I’m respon­si­ble for the house line gas/electricity, sew­er, water, and trash. No idea how much that will be. I also need to include yard work. I have no idea how much each of those are, so I’m wait­ing to get actu­al num­bers on those before I include them.

  16. That’s a sweet look­ing home. When I think “triplex,” I think ugly box. That is any­thing but an ugly box. It’s amaz­ing what you can get for your dol­lar here in the mid­west.


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