First Investment Rental Property
My First Investment Rental Property Rehab
In this article, I’m going to talk about my first challenging experience finding, negotiating and rehabbing an investment rental property. This is a situation that you too may encounter as a beginning real estate investor. It took some effort, but the experience was invaluable in learning how to make money in this business.
I purchased this investment rental property through a realtor that sold mostly bank owned properties and dealt primarily with real estate investors. The agent showed me several properties, but one stood out in my mind. This property was in a profitable renting area, but required a lot of work. The house was on the market for several months and wasn’t moving, most likely because of its condition. The downstairs was gutted and only a couple of the rooms on the second floor were finished. Tools were left behind as if someone left the house for a lunch break and never returned. I knew the property was not getting much interest because of the cob webbed walking areas. I asked if the owner planned to complete the repairs due to the condition of the house. The realtor said the owner moved abroad and just wanted to unload the property. The asking price was $18,000 and I estimated the rehab would be about $5,000.
With the obvious condition of the property and the owner willing to sell as is, I submitted a low bid of $13,000. They countered at $15,000. I accepted with one condition, the tools stayed in the house. I won the bid. I told the realtor I was a cash buyer, making it a quick settlement. The only problem was I didn’t have $15,000 in cash. I had two credit cards with limits of $20,000 and $10,000. So I drew $25,000 from the credit cards to purchase and rehab the property. My father and I did the work on the property. We finished with total out of pocket cost of $23,000. Even though I owed $25,000 on credit cards the house had no mortgage, I owned it free and clear. I knew the property was worth about $50,000 looking at comparable comps, (market value of homes being sold in the area). I then secured a mortgage on the house for $35,000. After subtracting the $23,000 to pay off my credit cards, I had $12,000 to reinvest in my next property. After securing a tenant I had a positive cash flow of $200 a month. The property was self sufficient and I was ready to move on to the next investment rental property.
With this being my first real experience in rehabbing an investment rental property, I must admit I was a little nervous, but it also gave me the confidence to find more. Your first rehab property may not be as advanced as mine, but nevertheless, it will give you the self-confidence you need to be a successful investor. Research your property, compute your cost, submit your bid, make low cost repairs and strategize how to make a profit. I hope learning about my experience will give a glimpse of how to purchase a rehab property.
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