I purchased my first property!
Wow, what a relief, a huge rock has been lifted from my heart. Why, you ask? Well I’ve been saving for some time and have been convinced for over 2 years that real estate investing is the best way to create passive income and eventually wealth! Fear has been the main thing keeping me back. Questions like, “What if I purchase the wrong house?” “What if there’s no appreciation?” “What if the tent stops paying rent?” “Do I need to consult a lawyer?” And many many more questions kept holding me from making this purchase.
Now don’t get me wrong…. My mind is still racing with questions and uncertainties. Real estate investing does have risk to it and my property might not perform as well as the numbers look on paper, but I understand that the only way to proceed is to start and take action! There are so many things that I couldn’t have learned by researching alone, that I was only able to learn during the actual purchase process. There are many things I’m sure I’ll learn over the next few weeks that will make my next purchase better and easier to complete.
So what did I buy? I live in an area where a condo costs over a quarter of a million dollars, not to mention a single family home. So I decided to work with a turnkey property company in Memphis. Through them I purchased a single family home valued at $72,700. I used a 30 year conventional loan to finance 80% of the price and put down 20%, which comes out to $14,540. Together with closing costs of $4,602 my total out of pocket cost was $19,142.
The turnkey company renovated the property prior to the purchase and placed a tenant in the home. Monthly rent for the property is $795. You can see the rest of the numbers below:
| Item | Monthly Cost |
|---|---|
| Rent | $795 |
| Taxes | – $100.83 |
| Insurance | – $33 |
| Management | – $79.50 |
| Debt service (P+I) | – $316.67 |
| Cash flow | $265 |
My cash flow is around $265 a month when there are no vacancies and no maintenance costs, so to make sure my expectations are inline with reality I’ll deduct 5% for both of these each month and my total cash flow after vacancy and maintenance should be around $185 per month, or $2,220 per year. That’s an 11% return on investment (ROI).
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