Deal 1: Head First Into Real Estate

The Property: It's a quadruplex that is broken into three separate buildings. There is a 3 bed 2 bath unit, a 2/1 unit, and two 1/1 units in a shared building. The 3/2 was originally two 1/1 units that were converted more than 15 years before I bought it. It is located in Phoenix, AZ. 
 
Closing Date: October 5th, 2017

​My Mindset: I had just finished reading real estate books and listening to roughly a billion podcasts. I was eager to start real estate investing! A house hack seemed to make the most sense for me and ​had the best long term upside. I had also recently moved back home and was living with my mom. I was trying to move fast! I was looking in a few areas that were either close to public transportation, shopping centers, or mountains.

​How I Found It: It was on the MLS (Multiple Listing Service). My realtor would send me emails daily and I saw it the night it came on the market. The next morning I drove by the property and told my realtor to make an offer at asking price that day.
 
The Timeline: It took me a little more than two months from the time I moved back to be able to close. This was the second house I made an offer on. The first was a triplex that had less potential, was in a worse area, and was only 50k less. The agent strung us along and eventually provided his own buyer at my offer price. I actually lucked out. 
 
The Negotiation: I offered to buy the house at the asking price of $319,000.  My realtor noticed one of the units had a damaged roof.  The seller wanted to split the cost of the new roof and claimed it was 11k. I didn’t know my numbers and trusted my realtor. I was also eager to get a deal done and agreed. The new sale price was $324,500. There weren't any plumbing clean outs and the seller agreed to give me 3k toward closing costs.
 
The Financing: I used an FHA loan, which only required me to put down 3.5% with an interest rate of  3.75%.
 
The Numbers: I didn't know them like I should. I didn’t look at what the rents should have been, projected my rents, expenses, or my cash flow. I looked only at what the rents were and what the mortgage was going to be. My only thought was I wanted a house, so get me in and I’ll learn!

​Here is how the numbers broke down when I bought it and where they are now

How I Found It: It was on the MLS (Multiple Listing Service). My realtor would send me emails daily and I saw it the night it came on the market. The next morning I drove by the property and told my realtor to make an offer at asking price that day.
 
The Timeline: It took me a little more than two months from the time I moved back to be able to close. This was the second house I made an offer on. The first was a triplex that had less potential, was in a worse area, and was only 50k less. The agent strung us along and eventually provided his own buyer at my offer price. I actually lucked out. 
 
The Negotiation: I offered to buy the house at the asking price of $319,000.  My realtor noticed one of the units had a damaged roof.  The seller wanted to split the cost of the new roof and claimed it was 11k. I didn’t know my numbers and trusted my realtor. I was also eager to get a deal done and agreed. The new sale price was $324,500. There weren't any plumbing clean outs and the seller agreed to give me 3k toward closing costs.
 
The Financing: I used an FHA loan, which only required me to put down 3.5% with an interest rate of  3.75%.
 
The Numbers: I didn't know them like I should. I didn’t look at what the rents should have been, projected my rents, expenses, or my cash flow. I looked only at what the rents were and what the mortgage was going to be. My only thought was I wanted a house, so get me in and I’ll learn!

​Here is how the numbers broke down when I bought it and where they are now

Improving The Numbers: I looked into, and called around about, installing a RUB system (Ratio Utility Billing) to decrease the expense of water I was paying. The companies I was calling said they didn't work with a property this small. I also didn’t look that hard because with the rental increases I was giving, it seemed like a lot all at once. 
 
When I took over the property I had planned to get into each unit and rehab them. I was going to begin with the 3/2. I gave them a notice to vacate and they countered by offering to pay $1200 a month. I agreed. Welp, that was easy! Unit D was on month to month and had 5 pets and I implemented a pet fee of $25 per pet. They agreed and that increased their rent to $892.25. I eventually got rid of the couple in Unit A and is where I live now. I say got rid of because they stayed past their lease ending and their unit was absolutely disgusting. I attached a couple of pictures of what it looked like after they moved out so imagine what it was like with them there. Everything was covered in dust and smoke residue. It is a lot better now!

When the lease was up for the person in Unit B, I offered her to stay but would increase her rent to $725 and she was fine with that. Once I got to the point that I was almost done with rehabbing Unit A I was looking to where I wanted to go next. Unit D was going to be my best option as they were still month to month. I had told the tenants in Unit D that I was going to substantially increase their rent. At that point I was thinking I would be happy if they stayed but was okay if they left. They decided to stay.
 
The Plan Moving Forward: At this point I don’t have any real issues with the tenants and feel lucky about that. I’m enjoying being able to save money every month by living for free. The person in Unit B will be moving out at the end of April so I will move into that unit and begin rehabbing that. I'll be holding the property for the next couple of years to see what I want to do. If I sell it before the 5 year mark of owning it I will be able to avoid capital gains tax since I will have lived in the house for 2 of the past 5 years.
 
Why I Did It: I knew it was either now or never. If I bought a single family to live in, it would’ve taken me a long time to save for a rental property or grow as fast as I wanted. Now I was able to go from 0 to 4 units just like that.
 
What I Learned:

• You have to just go for it. Ain’t no body got time for analysis paralysis.
• I did not know nearly as much as I thought I did.
• I should have run the numbers before hand.
• Real estate is very forgiving.
• This reaffirmed in me that you are the only one looking out for you. I trusted my real estate agent when it came to the roof. I now know that what I paid, or agreed to, is more than what a roof should cost. Also, the previous owner used a $1,000 insurance deductible to pay for it.
• I don’t like being so far out of the negotiations.
• An inspection will turn up a lot of things but that does not mean it is not a good property or not live able.
• I presented myself as the property manager and I’m glad I did.