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A Beginner's Success Story: My First Income Property

by John L. from Tupelo, Mississippi   
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I've wanted to own income property for quite some time. My career background includes banking, investment advising, and now financial planning/business consulting. For almost two years now, I have had my own consulting firm. (We now have 4 employees.)

Well, I have watched real estate investing by others all along my career--from banking, to investments, to planning. And I have seen people do very well with it.

So, here's how my first deal has gone down...

My wife and I had sold our home and were about to move into another home when the deal fell through on the home we were trying to purchase. So rather than rent until another home was found that we liked, we decided to purchase a smaller home (with the intent on eventually renting it) until we found the right permanent home.

In the interest of full disclosure, we did put 20% down on this home purchase ($20,000 on a $100,000 home purchase). With 30-year terms and a good interest rate, our payment was $440.46 per month.

Well, after a year and a half, the home of our dreams came on the market. We agreed to pay $156,000 for our new home and were required to put down 10% ($15,600). On this deal, we borrowed the $15,000 from a HELOC on the existing property, purchased our permanent home, and moved into it.

At this point, we ran an ad for our rental home and had six families very interested. After doing a little due diligence on the families, the buyers moved in and we enjoyed a small positive cash flow.

Now, here are the numbers:

Rent: $725 per month ($8700 per year)
Taxes: approx. $1,000 per year
Insurance: approx. $600 per year
Annual debt service: ($440.46 X 12) $5,286
Net income: (before maintenance) $1,814 or $151 per month

Although we did end up replacing the central unit (about $2,500), we now have a small positive cash flow of $150 per month. I realize that this is not a very exciting deal, but the house does carry itself, for the most part, and the tenants are paying the mortgage for us. And we are enjoying some tax benefits (depreciation and interest deductions).

But I guess the bigger point is that this deal has given me the confidence to do other deals--perhaps multi-family and/or commercial deals. With my planning business in full swing, I meet people all the time that pool capital, talent, and other resources to invest in income real estate of all types. Cheers!

 
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