The first Investment Property 2010

5 unit Apartment site.

I made our first investment of the new year. I closed on a five unit apartment site in late January. There are very good real estate deals available and I expect to do several deals this year. In order to do several real estate deals this year and as a future business model, I will be using a real estate LLC as the business model.

This first project is a 5 unit apartment property. When fixed up we will have about $105,000 in it. After the apartments are remodeled and the leases expire, and when the new leases get in place, the properties income will increase to $2,500.00 a month. That will increase the returns even more then I have estimated here.

This deal is extra profitable, most deals return 15% to 20% a year. In which case investors would double thier money in five years.

Here is the numbers on this first deal.

Cost bases $105,000

Five rental units

Mortgage $65,000

Rental income when full $1,875 per month

Taxes $2,676.00 a year

Tax Value $127,500

Value based on income $159,000

Payment on $65,000 mortgage $447.00 month

Annual income        $22,500

vacancy  allowance - $1,875

taxes                      - $2,676

maintenance          - $2,000

management          - $2,250

net income               $13,699

Return on purchase cost 13% (13,699 divided by cost $105,000)

Payments                 - $5364

Net cash flow            $ 8,335

Return on net cash flow 20% ($8,335 divided by $40,000 equity cash)

Estimated value in five years $200,000

Estimated return with appreciation over 5 years 300% Plus

UPDATE: 1-25-2010

Now that the property has actually closed we have more accurate numbers, here are the new projections on this deal.

Pro forma financial Projections*

Income Year 1

annual rent income $22,700

vacancy - $1,875

taxes - $2,555

maintenance - $1,800
insurance -$1,450

management - $1,135

net income $13,885
Return on cash 34% annually ($13,699 divided by $40,000 equity cash)

Payments - $6,417

Net cash  $7,468 Return on cash flow 18% ($7,465 divided by $40,000 equity cash)

Income Year 2

annual income $23,500

vacancy - $1,875

taxes - $2,555

maintenance - $1,800
insurance -$1,450

management - $1,135

net income $14,685
Return on cash 36% annually ($14,685 divided by $40,000 equity cash)

Payments - $6,417

Net cash  $8,268 Return on cash flow 20% ($8,268 divided by $40,000 equity cash)

Income Year 3

annual income $28,800

vacancy - $2,500

taxes - $2,855

maintenance - $2,000
insurance -$1,650

management - $1,440

net income $18,355
Return on cash 45% annually ($18,3555 divided by $40,000 equity cash)

Payments - $6,417

Net cash $10,087 Return on cash flow 25% ($10,087 divided by $40,000 equity cash)

This is an actual deal that was purchased January 2010.

Anyone interested in real estate limited partnership please feel free to contact me at jglasgowsr@yahoo.com

I am working on a basic syndicators manual and will put in the articles section soon.

Update 6-6-2010 The remodel work is going slow, we are paying cash as we go and buying another property at the same time. The reason for paying cash for the property improvements is two fold. First; we want to show everyone that it does not take deep pockets to get rich. Second; we want the maximum amount of equity when we go to refinance this project this fall. We are refinacing to take out cash for a larger project. We want the property to appraise for $180K, using our maximum 66% leverage rule, we will refinance for $116K that will free up $52K (the differance between the $116K new loan and the current note balance). That money will be used to buy a property with a $250,000 value, we want to pay about $150K for it. It will take some searching to find such a bargain, but we will.

 Update 10-24-2010 Slow but steady progress and the cash flow will be better then expected. See update article link here.

Update 8-2011: Re-Financed
We refinaced this property: cGem Rentals re-fi of Seguin Property

It had been are intention all along to refinance the five unit apartment property we acquired last January (2010) The project has run behind schedule and will be six months behind when completed in July. We where paying cash out of pocket as we went for this work and the $5,000 a month gets old quick.

On the plus side we had little debt ($66,000) against a property that will bring in $2,900.00 a month and net about $29,000 a year for a value close to $300,000 on the net spendable. If we sold it and if got the full price we would have doubled our money. As we are in the cash flow business, and not the cash out business, we are not selling (for five years anyway).

We did re-fi the property to get more cash for more properties and to stop us from putting in more cash on a monthly basis. With the new cash we will be able to fast track the rest of the re-hab work and get done in the next seven weeks. We (the owners) will still put in more cash if need be, and we are still paying all out of pocket business expenses, out of pocket. We put all in-coming cash right back into more projects as this is a five year plan.

The Re-fi is for $150,000 at 8% compounded annually for five years. No monthly payments, one balloon payment at note end. We will have to repay $223,000 in five years. We will use the $150k to finish the project, and for down payments on two more four-plexes.