Property #1 details – Primary House

I purchased this house in November of 2013. My intentions were to rent out the house I was living in at the time and purchase a new house to temporarily live at and rehab for the sole purposes of it being my next rental property. My plan was to repeat this process over and over again in my current market. At this time I absolutely had no intentions of ever purchasing an out of state property.

The market I live in is a very hot market in the US right now and competition is tight for investors. It is very difficult to find good deals on the MLS and when one comes up, it is gone typically in that day.  Its crazy!!   Multiple offers are submitted causing a bidding war.  This is one of the reasons why the appreciation on this house has gone up drastically in the short time I’ve owned it. More on that later.

It literally took me 4 months of scouring through MLS listings every single day and multiple submissions lost due to being out bid before I landed this one.  My goal was to make at least a 10% cash on cash return on this property.   10% for the market I live in is good and this number varies depending on where you are looking to buy an investment property.   Today investors are not even coming close to 10% cash on cash here as the market has not slowed down at all.   I had put offers on 3 other houses within the 4 month time frame that were right around 10% returns but lost every single one by being outbid by other investors.   Once I set my mind on a certain criteria I do not want to change it and lower expectations.   This goes against my plan to build as fast as I can. I keep my heart out of purchasing rentals. Its all about the numbers folks.  Keep emotions out of it!

The morning this house came out on the MLS I immediately knew I was interested.   It was listed as a fixer upper below market value and was in a gentrifying area of my city.   Located only 4 miles from downtown and a major university I knew the location was great.   I immediately contacted my realtor to get more info and to set an appointment to get inside the house.   My realtor made some calls and after a short time called me back to tell me the listing agent accidentally listed the property one day early and that were was not a lock box on the house yet.   There was no way to get inside this property that day to see what kind of damages it had and what kind of repairs would be needed.   This is all vital information needed to determine if a rental property will hit your numbers.   The realtor also came out and told me that the listing agent had been getting calls all morning because of this listing and there were already 4 offers on the property.   That’s right folks,  4 sight unseen offers on this house that no one can get into.   Ridiculous right?   Clearly other investors would be the only ones to do a risky move like this.   My agent told me if I really wanted this house that I would have to submit a sight unseen offer also and hope for the best.   This scared the crap out of me and I thought this was a really risky move.   I told her to sit tight and I left my dreaded day job so I could pull a drive by at this house and at least see what it looked like externally and get a feel for the neighborhood.   Upon arriving at the house the first thing that I noticed was that I thought the neighborhood was a little ghetto.   Knowing this part of town is in the process of gentrification I was not surprised by this but took note.   The only damages I could see from the outside was that the garage door was really banged up and would have to be replaced for sure.  The front lawn was a mess also, big nasty bushes everywhere pretty much covering the view of the house.  The house was an eye sore to say the least.

I thought long and hard for the next hour about what I should do and I couldn’t get over the location of this property.   It had everything going for it from that stand point and I knew that this area would only continue appreciating so I pulled the trigger.   The house was listed at $125k and I submitted a sight unseen offer for 130k.   I was already approved for about 150k through conventional financing so I got my approval letter from the lender specifically indicating I was approved to purchase this house.  I also was convinced that all the other offers on the house would probably be cash offers so I my hopes were not high that I would land this house.   Especially after getting out bid on my last 3 offers.

The next day I got a call from my realtor telling me that the owner had accepted my offer.   Gulp!!   Now I got really nervous and my heart dropped.   What did I just do.  Ive committed into purchasing a house I haven’t even been inside of.   I felt nauseous at this point and immediately met my realtor so that she could finally let me in the house as the lock box key was ready now.

As I enter the house the first thing I notice is that this place is a complete pig sty.  I cant believe how people live in messes like this.  Trash everywhere, the house was filthy.   All the walls were painted different colors from pink, blue to green.   There was literally a dog poop on the floor too.   Speaking of floors, they didn’t have any really.   Half the living room was uncompleted tile and the rest of the house was all concrete floor.   Every single door in the house had punched holes in it.   There must have been some seriously angry people living here.   I did come to find out that the people living there were in fact tenants and that the owner lived out of state.   Anyhow as we walked around the house it was very funny to see the look on my agents face.   She was appalled and couldn’t even believe I would think about purchasing this home.   But guess what?? I couldn’t have been more happier.   All I saw was potential.   Every issue I saw with the house was merely cosmetic.   This is perfect and exactly what I was looking for.

I scheduled the inspection and sure enough it came out clean.   All mechanicals including roof, HVAC, water heater and foundation were in good working order.   Music to my ears!!   I was feeling more and more confident about this super risky maneuver I did of submitting the offer sight unseen.

About 3 weeks later I closed on the house and immediately began repairs. I spent close to 15k replacing everything I needed to and making the house livable.   Don’t forget my plan was to live in this house so I could rent out the other which was still in full play however I had to fix the house first before moving in because there is no way in the world I could live in that house’s current condition.   The repairs took about a month.

Fast forward >> I still live in this house today and decided I don’t want to move out and rent it out anytime soon because I absolutely love the location.   The house has appreciated over 100k in the less then a year and half and I’m ecstatic about it.   I have no near future plans on ever selling this house because I am going to keep all my properties.   I am a buy and hold investor and that is exactly what I plan to do.   One day I do plan on utilizing a home equity loan to take out some of this equity and apply toward purchasing another rental.   When I cross that bridge I will let you know.

Here are the actual numbers including actual rehab costs for this property.   Remember, the spreadsheet below was calculated as if it was going to be a rental.   Even though its not going to be a rental anytime soon it had to hit my criteria or else I would not purchase it.

As you can see, I exceeded my original expectations and today this house is worth $240 to $250k.  What do you think? Did I get lucky or what?