Real Estate Investing Series: Here is the Deal - The Breakdown

Here is the Deal #2 – Purchasing Little Mermaid

Our second investment property is an interesting one. We found this house through a wholesaler and because it was located in North Miami Beach, the city where I grew up and worked as a property manager for a couple of years, I was sold.

This seemed like a perfect deal. This house is a 1B/1B house which is pretty rare in Miami. It was spacious and needed very little work. 

I had never bought from a wholesaler before, so I was nervous. We had 24 hours to decide whether we wanted or not and put $10,000 in escrow with their title company. The money would become non-refundable immediately, so if we were to back out of the contract, bye-bye money.

As scary as it was, we took the risk. We didn’t even get a chance to get an inspector or appraiser before locking it down. I have to tell you, we got lucky! The house seemed a little too good to be true.

The plan was to hold off from buying additional properties until the duplexes were refinanced. However, once you are in that investor high, you can easily get excited about every deal that seems amazing. This is where it is important to be careful about not jumping into the next deal without finishing your first. 

Financing The Purchase of The Property

This deal was a “cash” deal. Now, mind you. We didn’t have that kind of cash just sitting in our bank accounts. We barely had $2,000 in savings.  We barely made this one. 

  • $20,000 business line of credit from Moonstone Realty Group LLC (10.48% APR)
  • $50,000 personal loan from SOFI (15.24% APR)
  • $5,000 Cash advance from WF credit card. ($150 Fee)
  • $85,000 Purchase Price

We were able to cover closing costs with rent payments that came thru and immediately paid off the cash advance with money we got from move-in fees from the duplexes. 

Before we signed the deal, we made sure we were able to qualify for the loans in addition to a detailed analysis to make sure that the interest fees were not going to eat up our margins. 

If done right, we would still profit. 

Rehabbing the Property

We spent $9,500 in rehab costs all in with materials. 

The main issue with the house was unleveled flooring and the HVAC system. The rest was cosmetic. Some of the work performed:  Replaster and Paint exterior, demo, level the floor, new tile, and baseboards, texture the interior walls and paint, repair ceiling, replace broken doors, change lights, replace A/C unit, water disposal.

We were in and out within 2 weeks. We had the housed appraised and it appraised at $110,000 which resulted in about $16,000 of built-in equity. 

Refinancing the Property

We had a mortgage broker that told us about a loan program called the Fannie Mae Delayed Financing Program. This program allowed an investor to add value to the property and immediately refinance the property without a waiting period. Most programs require you to wait at least 6 months to a year before being able to get money out. 

We bought this property in March 2020 which is when the outburst of the COVID situation become apparent.  At the same time, we were trying to purchase our home in Georgia. We were using the same lender (PRMG) for both transactions. This was a big mistake. Everything seemed great, but the moment we introduced the purchase of our home, our refinance suddenly sat on a desk and did not move.

We weren’t even able to close on our home with that lender and had to move both files to other lenders. We ended up using Fairway Independence Mortgage and refinanced all three properties (including the duplexes) at the same time. 

Given the inconvenience of having to switch lenders, we ended up paying more interest in the personal loans than anticipated, but thankfully we had enough room in the deal to still profit from long-term cash flow and equity pay down. We were able to secure a tenant in April so we had cash coming in to help pay the debt service. 

The refinanced loan paid the following: 

  • $50,000 SOFI Loan
  • $10,000 Personal Line of Credit 
  • $13, 456 Business Line of Credit
  • $73,456 Total debt pay-down. 

In total, we ended up leaving $20,000 of our money in the deal once set and done. The property cash flows about $250/month which is a home run in our books. That’s 12.5% cash on cash return.

Lessons learned

The big takeaway from this transaction was to consider insurance costs upfront and ALWAYS look for alternatives.

There was a point where I was ready to sell this house and take the loss. When I initially quoted the insurance, I was quoted $5,000 by a couple of insurance brokers. The flood insurance alone was $2,500. That was $416 per month! That would take all of the profit and put us at a loss!  We freaked out and we were ready to put this house for sale and take the “L”, but then I decided to look further. I googled and googled into I came across an alternative option for Flood Insurance. In my search, I came across and got coverage under the National Catastrophe Insurance Program (NCIP)for flood (alternative to FEMA) and RealProtect for general liability. Total insurance cost ended up being $2400 which is $1700 for general and $700 for flood insurance. 

Overall, I love this property. It’s super cute and people love it. The only downside is that is in an area that floods a lot. Hence, the name “The Little Mermaid”.

This post may contain affiliate links. I may get commissions for purchases made through links in this blog.

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