Deep Dive! Examining the numbers on our first “deal”

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After giving you all more than enough information on my past, my wife’s past, and a glimpse into where we are now, I thought it may be good to show the numbers on what our first real estate deal has been:

Monthly Income: $1,750.00

Monthly Expenses: $1,550.00

Monthly Cash Flow: $200

NOI: $12,498

Total Cash Needed: $48,500

Cash on Cash ROI: 6.23%
Property Information
Purchase Price: $155,001.00
Purchase Closing Costs: $5,500.00
Estimated Repair Costs: $12,000.00
Total Cost of Project: $162,501.00
After Repair Value $292,000.00
Down Payment: $31,000.20
Loan Amount: $124,001.00
Loan Points: $0.00
Loan Fees:
Amortized Over: 15 years
Loan Interest Rate: 2.750%
Monthly P&I: $841.50

 

A couple things you may notice here. Our expenses seems to be pretty high. That is because we take a very conservative approach when analyzing our properties. We estimate vacancy, repairs/maintenance, capital expenditures, and property management (even though this one we self-manage). Once all of this is taken into consideration, we like to still have a net cash-flow of $125-200 per unit (or home if it is a single-family as this one is). It’s not flashy, and one property isn’t going to get you financially free, but, I believe there are numerous benefits to jumping in a doing your first deal. (More on this to come).

Second, we have a very low interest rate. This is because I was fortunate enough to have my parents be my lender on my first purchase. They wanted to help me get my feet wet, while still earning considerably more on their money than they would in a bank account. I am forever grateful for their generosity on this! (Side note, we have used some of their money [as well as other family, friends, and investors] since this purchase, but pay a very competitive rate and generally on shorter term loans).

So, the numbers basically speak for themselves here; all else staying the same, we should at least generate a positive cash flow averaging $200 a month.

But, this property has been anything but average. We have the most wonderful tenants in this property that have increased the value tremendously (on their own dime), and signed a 3-year lease in exchange for no increase in rent, thereby eliminating our vacancy costs. We have had only minor issues in the last 1.5 years that they have lived there, all of which I have been able to handle myself, thereby also vastly lowering our maintenance fees.

So, all of this has been a blessing, but it keeps getting better. Since I lived in this property prior to marriage, I was able to secure a Home Equity Line of Credit (HELOC) while I was in there. At the time, we secured a $50,000 line, which in turn helped us with the down payment of two of our next properties.

Most recently (another two years after the HELOC), we decided we wanted to increase our LOC on the property. Since we no longer lived there, increasing the HELOC was out of the question, so we opted for an investment property line. We had known that our market had drastically appreciated since I purchased in 2012, but we were amazed by how much. The appraisal came back at $292,000 – almost double what I originally paid for it.

My point here is that real estate can provide so much investing power. Something as simple as purchasing in a decent area, putting in a little sweat equity, and holding onto this property while generating some cash flow has essentially put an extra $150,000 in our pockets over the course of 5 years… and this is from one property!

I hope to continue giving some insight into our investing philosophy as we continue to grow. Please do not hesitate to reach out with any questions or comments; I’d love to help in any way I can!

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