So, how exactly did I buy a rental property when I was just 22 years old?
“Success occurs when opportunity and preparation meet.”
“Whatever the mind can conceive and believe, the mind can achieve.”
Acquiring the Property
Rental property was almost all that was on my mind for nearly a year. I really got inspired and kicked it into high gear after reading Robert Kiyosaki’s book, Rich Dad Poor Dad. Any spare moment I had was spent researching, reading books, listening to podcasts, and setting up meetings with mentors. In conjunction with all this research, I was also saving very aggressively. This was the preparation stage.
Now I just had to wait for the right opportunity. That opportunity came in November, 2016. I found a foreclosed house about 2 miles from where I live. I called my realtor so he could show me the inside. The next day I made an offer. This started the long, complicated process of buying a foreclosed home. The listing agent was semi-retired and seemed to think he could communicate whenever he felt like it. The bank that owned the property was halfway across the country and also unresponsive. After everything from not getting signatures in time to the water line breaking, the closing finally happened about 3 months after my initial offer.
As for paying for the property, I put 20% down and got conventional financing for the remainder of the purchase price. What some people don’t realize is that small community banks often specialize in these types of loans. You’re allowed to have a total of up to 4 loans with the “secondary market” (Freddie Mac, Fannie Mae) at any point in time. On this property, I got a 30 year fixed rate at 4.5% which I think is pretty good.
My husband and I were engaged at the time so he was pretty involved in the process. I don’t think I would have taken the leap without knowing that he was handy and knew how to do home repairs.
I took possession of the property in February and our wedding was going to be in April. Not the best timing. We immediately got to work with painting, fixing the gutters, and making sure everything was up to code. The only major issue was the kitchen. I probably could have rented it with the kitchen “as is” but I think I would have had to go down on the rent price that I wanted.
As soon as Mike started beating the cabinets with a sledge hammer, I started to question whether or not we had made the right decision in demolishing the kitchen. Too late to turn back now.
This was the most stressful part of the entire process. At one point, there was no way that you could tell this had ever once been a kitchen. What added to my stress even more was I had no idea what I was doing and Mike had no other help, so the whole success of this thing was on his shoulders.
Let me tell you, the stress was real, y’all. Don’t forget, we had our wedding right around the corner!
We were at the rental house just about every weekend and some weekdays. Every minute that I wasn’t there working on it I would feel so guilty. I do need to give credit to my parents. My mom helped with the painting and my dad hauled off the paneling and old flooring to the dump.
Once the kitchen was fully demolished down to the plywood flooring and wall studs, Mike got to work putting up drywall. We tore it down to the studs because the previous wall was made of paneling which was just not a good choice for such a small space. Picking out the cabinets was a whole other ordeal. Can you believe how expensive cabinets are?!
Once the cabinets were on the wall, I started to see the whole room coming together and looking like a real kitchen. My goal was to get everything finished by our wedding but near the end, our quality of work was slipping from the rush so I decided to just put everything on pause until we got back from our honeymoon.
When we returned, I spent a couple of weeks reading over applications and giving tours of the house. I finally found someone who was suitable and a year later have had no problems out of them. Stay tuned for a post on how to avoid nightmare tenants.
Rental Property Analysis
For all you number nerds out there, here’s the part you’ve been waiting for. Time to get down and dirty with the numbers.
Purchase Price = $55,500
Cash Invested (Down payment, closing costs, repairs) = $21,459
Gross Income = $9,130
Operating Expenses* (interest, taxes, insurance, etc.) = $3,562
Net Income = $5,568
Return on Investment = 25.9%
*I’m not including principal payments as it is going toward the equity in the property.
Can you believe those numbers?! Yeah, I can’t really believe it either which is why I’ve had to second-guess myself multiple times as to whether I’ve done my calculations correctly or not.
This is why I love real estate. In order to get cash flow of $5,568 in the stock market using the 4% rule, I would need to have an investment portfolio of $139,200. With this rental property, I’ve only invested $21,459 to get this return. Mind blowing.
So, are you motivated to buy your own rental property? Once you really look at the numbers, it’s easy to say to yourself “why not?” People are always going to need to have a place to live, right?
The key is to know what you’re getting into. Consult with people in the field who have years and years of experience. Listen to podcasts, read books, and get a feel for the rental market in your area. I would highly recommend visiting the Bigger Pockets website. This is a site filled with experienced real estate professionals who will be happy to answer any questions you have.
Keep in mind, if you want to invest in a rental property, you need to decide if you want to be active or passive in your investment. Obviously, if you are passive, you will have to pay a property manager which is typically 10% of the gross rent. A lot of people use the excuse of “but I don’t want someone calling me at 2am saying the toilet is clogged.” So far that has not happened to me, but there’s a first for everything.
I hope you gained some value from this post. I would greatly appreciate if you leave a comment or contact me directly if you have any questions or comments.
Before & After Photos