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

Here is the Deal – Thunderbird House Purchase Breakdown

This is probably one of my favorite houses and not because it’s a killer deal, but because it’s just a great house and we have a good Section 8 tenant.

The Deal

Purchased as part of a 3-house package that we bought as my 30th birthday gift (I wanted 10 units by 30). We closed the day before my birthday on June 8th, 2021. The house was rented to a long-term section 8 tenant for $705 when we purchased. In February 2022, the house was renovated while tenant-occupied. Section 8 rent increased to $850 with the same tenant. Acquired cash using a combination of loans and refinanced into portfolio loan in 2022.

  • Purchase Price: 38,000 (part of a 3 house package for $90k).
  • Rehab: $13,500
  • All-In Cost: $51,500
  • ARV: $45,000
  • Net Equity: -$6,500
  • Cash Left on Deal: $20,000

If you are new to my blog, you are probably saying… what a shitty deal. Right? A quick recap of our strategy: We buy fixer-upper properties in bad neighborhoods that show signs of improvement within the next few years. Meaning, the city is putting money or there is a lot of activity from investors. We buy and we wait for the market to catch up to the area shift. Most of our neighboring properties are abandoned houses or properties being rehabbed by flippers or other fix-and-hold investors. This means appraisers don’t have good comparable properties to use. We invest for cash-flow now, appreciation later. Therefore, negative equity is not a deal-breaker for us.

The monthly rent is $850, so the 1% rule of thumb checks out. The true numbers are not in yet, but in average we are looking at $200 net cashflow (after reserves) per month. That’s a 10% cash-on-cash. We could be getting an additional $100 per month in rent if we had gotten a new tenant, but we didn’t want to deal with tenant turnover, so instead we requested increased rents with Section 8. They pay 100% of the rent. Guaranteed money.

Also, I should note that the appraisal was done before renovations were completed. The plan is to come back later and pull the equity via a line of credit. We are going to give it year.

The Financing

The exact amounts were blurry, so I had to go digging into my bank activity to remember how we funded this package deal. Here is the breakdown based on what I was able to gather from our bank statements:

  • $38,000 from our Penfed HELOC on the Big Horn property.
  • $40,000 from refinance of the Magnolia and Cottage House.**
  • $12,000 from Vanguard Brokerage account. (I had completely forgotten about this)
  • $90,000 Total

A quick note on the refinance funds of the Magnolia and Cottage house. Those were actually funds that we had borrowed and had initially intended to use to pay down loans, but our private lenders didn’t want to get paid so we decided to re-invest. Funds from our private lenders are not cheap, but they are interest only and these guys have been lending us money consistently for 2 years. No questions asked, just a promissory note, they send us the funds and we can use as we please.

In reality, the only money that we had to come up with for closing was the $12k. I remember that I was really conflicted when I cashed out our Vanguard EFT account because we were putting all of our eggs on one basket by doing that, but I think it worked out.

At this time, we still have the HELOC fully drawn. We ended up paying back the $40k using another HELOC ($30k) and our salaries ($10k).

The $13.5k spent to renovate the property initially came from a line of credit and credit card, but eventually paid off with our salaries as well. It’s safe to say that the $20k left in this property is ours and not borrowed at this point.

The Rehab and Management

We bought this property in June 2021 and it was the first sight-unseen property we purchased. We couldn’t go because we were getting ready to go on vacation and work was crazy, so our realtor went for us and we didn’t even do an inspection or pictures. We had no idea what we were buying, but for the price, we were okay taking that risk.

We had a property manager at the time who also confirmed that the properties were in good shape, but had some deferred maintenance. We decided to hold off on doing any work until we had the funding which was January 2022.

Initially, we were thinking of vacating the unit to renovate it, but we had just bought 13 units (9 Ladies and the Bluejays) that needed work. Rather than dealing with having a vacant unit with no rent and paying a leasing fee, we decided to renovate while occupied and just increase current rents. That was easier and painless. Rent still went up $145 per month from $705-$850.

We refinished the cabinets, repainted, resurfaced tub, put LVP flooring throughout the living room, kitchen and hallway. This came out to be $8k.

I coordinated the rehab myself, but outsourced the labor. As of July 2022, I am now managing the properties myself.

Lessons Learned

We didn’t have major issues on this one, but there are always lessons to be learned from each deal. We initially spent about $1k in roof repairs. The tenant reported leaks and the manager had a roofer do some patching work, but should have just replaced the roof right away instead of wasting money in repairs. The roof replacement was $4k, but ended being $5k because of the useless patching work.

Another good lesson is that sometimes, you just have to take risks and follow your gut on a good deal. This package deal was a you snooze you lose type of deal. If we had tried to do all the steps and put a whole lot of contingencies and waited until we could see it ourselves, we probably would have lost it. We’ve tried finding deals like these one recently and those don’t exist. Prices have gone up. Do I recommend buying sight-unseen and no inspection? Not necessarily. We try to do inspections whenever possible. We just felt comfortable because we knew the market, the type of neighborhood and had a good idea of what to expect based previous deals. Absolutely wouldn’t recommend if you are a newbie, new to the market, or not comfortable estimating repairs.

Check out my Instagram post with before and after pictures:

@Beyondjustnumbers – Thunderbird Before/After

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