Know Your Numbers and Get 25% Return On Your Investment

We’ve been hard at work on our current project, converting a duplex into a tri-plex with our investment partner. We’ll also be celebrating a very big birthday this week; our daughter will be ONE so I have been busy party planning while Josh is tiling, setting toilets, hooking up sinks, you know all the glamorous things that go along with rehab projects.

Anyways, we figured we would talk about our second investment purchase today! Our first duplex (first blog post) was purchased in January of 2014. Once we got that updated and rented out we started looking for our second almost immediately. While out driving in the Independence area we came across a duplex for sale. The owner was the listing agent on this one so we gave her a call while in the car and arranged for a showing the following day.

The owners that were listing this duplex were investors and typically buy distressed properties, rehab and then sell them which was the case with this unit. They rehabbed this duplex completely and already had one side rented out. If we bought this one, we just had to rent one side out. Now this sounded much better than the first unit we just spent over a month working on.  We decided to put an offer on this one and forgo a buyer’s agent (after going through this, we highly advise Do Not Go this route!). I was in the process of obtaining my license but wasn’t licensed so we essentially were unrepresented in this deal. We got the deal under contract after several back and forth negotiations and ended up with a purchase price of $115,000 (list price was $130,000). After inspections came back there were a few minor repairs that needed to be completed, such as water heater replacements, so we renegotiated at ended up at $113,500.

45 days later we closed on the property. From day one we were pulling in $750 in rent from the side currently rented, which is actually a little under rented but the tenants take care of the property as if it was their own so we haven’t raised rent.  This is important because on day one we didnt have any out of pocket costs, other than our initial investment, which was 25% down as we did a traditional 30 yr fixed mortgage.  It's also important to note that part of our contract stated that the previous owners were not allowed to rent the other side during the contract period (we prefer to screen our own tenants and use our leases – more on screening tools and leases on a later date) so we had to start looking to fill the other side immediately. We rented the second unit for $800 a month just a few weeks after we closed on the property. 

At the end of the day the numbers of this deal are broken out like this: 

  • 12.78% Capitalization Rate
  • 25.14% Cash on Cash Return
  • $1,575 Monthly Revenue
  • 1.38% Price to Rent Rule
  • 6.04 GRM
  • 2.95% DSCR

This second deal was quite different from our first investment for a few reasons.  First, we didn’t have to do a thing to the property in terms of updating it and after working tirelessly on our first investment we wanted something more turn key.  Second, this unit opened our eyes to a different area to invest in.  Previously we were focused in an area close to our primary residence, but this second investment was in Independence, MO.  When we initially drove through this city we didn’t really take to it at first, however once we started to explore the city more we found it had a lot to offer.  Independence has since become a primary focus area for our investments. 

Looking back – we learned a few things that we wanted to share:

  • Always use an Experienced Agent - As appealing it may seem to think you’ll save some money by coming to a deal without an agent, we found if you don’t bring representation to the deal to fight for you, you’ll end up doing it all yourself and it’s not always as fun as you may think. Save yourself the headache!
  • Don’t be afraid to expand your boundaries – You may think you’re set on one area but you could be missing out on other great opportunities.  Think about the deals that are out there that you’re not aware of because of one small zip code change…
  • Know your numbers – We walked over 40 properties before we bought our first deal, buying our second was a lot faster.  We knew going into this deal that the numbers worked, don’t look at a property unless the numbers work.

Whether you’re looking for your first investment or your 50th, after 18 properties under our belt in just under 24 months we’ve learned invaluable knowledge that we would love to share as your real estate investment adviser/agent.  We’d love for you to be a part of our neighborhood