Deal 2: Trying Long Distance Investing

The Property: It is a single family 2 bed 1 bath with a loft and den. The house is in Independence, Missouri, which is about 15 minutes away from downtown Kansas City.
 
Closing Date: October 19th, 2018
 
My Mindset: I already had my first deal done and I was getting the itch to get my second property. I was getting priced out of my market and began looking out of state on a whim, and the numbers worked!

My older brother lives in KC, so it kind of made sense. I wanted to ease into out of state investing and was looking for a property that needed minimal rehab and the numbers still worked.
 
How I Found It: I found it on realtor.com.
 
The Timeline: It took me a little more than four months from the time I started working with a realtor until I closed. I found my realtor through a real estate community website called, BiggerPockets. My realtor was awesome in that I would find a house and she, at times, would simply say ‘I drove down the street and didn’t like the vibe so I didn’t even go in. This was the 4th house I offered on. The other three I had offered at or above asking price but was a multiple bid situation.
 
The Negotiation: The house was listed at $89,000 but had been on the market a while. I offered $83,524 and it was accepted. The house had some structural issues and concerns about water flow on the front lawn toward the house. We went back and forth and settled on the seller giving me $2,400 toward closing. But, my lender told me that I can't receive more than 2% toward closing which meant I ended up getting $1,670.48 toward closing. That sucked but count that as a learning experience.
 
The Financing: I used a conventional loan with 25% down at 5.375%. If I had put down 20% I would have had an interest rate of 6%.
 
The Numbers:  This time I was more prepared and knew exactly what the numbers would be.

 


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​Improving the Numbers: When I bought the house there was a tenant already in place who was paying $850 a month. I used rentometer, craigslist, and Zillow rent and was seeing that $900 was the average rent for this type of home in the area. My property manager was worried that would be to much of an increase and they would leave right before the winter months. We went back and forth and settled on getting to $900 by increasing the rent to $875 with a $25 pet fee.
 
The Plan Moving Forward: The house has a den area that once the current tenants move out I will convert into a third bedroom and create more livable space in the basement. Once that is done I will try and refinance and pull out some of, but hopefully all, my money from the deal.
 
Why I did it: First, I wanted to see if I was capable of buying a house without ever seeing it. I actually went to see it a week after I closed but at that point it was already mine. Second, I wanted at least two properties before I bought a single family for myself. Third, it gave me at least $100 of cash flow after expenses. Lastly, it had a den area that will allow for some forced appreciation.
 
What I learned:

• It is possible to buy a property out of state and not see it first.
• Life is a lot easier if you know your numbers and stick to them.
• Find an agent who is trying to help you and not force a sale.
• The seller can only give you 2% toward closing cost on a rental property.
• Trying to find a house you can convert will help to refinance.
• Looking back at this deal now, in 2019, I realize some things I did to make it work. The difference between a 20% and 25% down payment is a difference of $50 a month. Yes, I like the fact that there is a den that I can convert to a bedroom pretty easy but if I would have put down 20% my "cash flow" would have been $75. I wouldn't have liked that. Also, I was willing to pay extra on my down payment because I wanted a better rate and to increase my cash flow number when talking to people. You know, sound like a cool real estate investor. But, if I refinance I will be getting a different rate anyways and if I don't refinance into a different rate it will take me 7 years to recoup the extra money I made in a downpayment. 

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