Well everybody, it’s official.
I am a homeowner! Perhaps more importantly in this context, I’m also now a landlord!
“Ok Gwen, that’s cool, BUT SHARE THE DETAILS! WE’VE BEEN TEASED ENOUGH!!”
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!
“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?!