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Real Estate Rental Property SH #3 Closed Today! (January 29, 2015)

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Hooray! 2015 is just getting started and we have another rental property under our belt! Today, my investment partner and I FINALLY were able to close escrow on Rental Property SH #3!

We got into contract in December, and let’s just say that closing this file was easily the worst loan experience of my life… and I’m not even on the loan! There was delay after delay, and extension after extension, trying to get this squared away. In the process, we alienated quite a few people, and I’m pretty certain the listing agent and sellers never want to deal with us again. 🙁

Initially, I was the one who was going to take on the loan. However, due to my many cash out refis, it wouldn’t have been possible since one of the conditions for refis are that the borrower cannot exceed four mortgages. This loan would have counted as my fifth, so my investment partner had to step up to the plate and take one for the team… Let’s just say his files were even more of a mess than mine would have been!

Luckily, at the final hour, we were able to close escrow and complete the transaction. And with that, I now own three side hustle properties and two of my own in the Bay Area!

With this burden off my shoulders, I feel like I’m really just one step away from being able to enter pretirement (I still have to complete the refi on Rental Property #1).

Honestly, I don’t feel like I really needed this deal… It sort of just convolutes things, but in the end, I couldn’t resist the opportunity to gain ownership in one last Bay Area property. This townhouse is a jack of all trades:

  • We could rehab and flip in 1 year.
  • We could buy and hold.
  • It could become a primary residence someday (great/safe location) for one of us…

If I do indeed leave my W-2 job in the near future, I will no longer be able (or interested) in taking on any more debt. I believe we secured a good (not great) deal on this property since it is a 3 bedroom townhouse and we were able to win it for under $500,000. In fact, we got it for $5,000 below listing… which makes this the first Bay Area property I didn’t overpay for.

Those last two townhouse partnership deals we won last summer can no longer be found as the local market has continued surging upward. I’m seeing 3 bedroom listings in that location pushing in the mid $500s and closer to $600,000 now. This latest deal isn’t located in as desirable a neighborhood, but I am confident we will have little problem renting it out as it is well situated next to: good schools, freeways, companies, shopping centers and malls, and will even be closeby to the new BART station that is being completed to extend the light rail into the South Bay. In fact, we may even elect to furnish the place and attempt to locate a corporate tenant again (which has been a great experience so far) so we can push up the cash flow.

In regards to cash flow, it’s too early to say right now what that will look like. A lot will depend on the rehab we decide to do in the next month or so. My initial guess is that we will budget around $10,000 to $15,000. I will be using the proceeds from the cash out refi on Rental Property #2 to fund both the rehab and to close escrow.

In all likelihood, this will be my final Bay Area rental purchase for the foreseeable future. In the last 4 years, I’ve managed to acquire ownership in at least one property each year:

2012: Rental Property #1
2013: Rental Property #2
2014: Rental Property SH #1 and SH #2
2015: Rental Property SH #3

With local investors, there’s a belief that if you simply make an effort to buy one Bay Area property each year (dollar cost average), you should be more than fine in the long run… So far, I’ve had a good experience investing locally and have been very fortunate to be able to locate some outstanding tenants.

I believe the addition of this property balances out my asset allocation to what I am comfortable with. I have a mix of both local properties and out of state properties, with most of my capital and loans being tied up in the Bay Area.

Now that this deal is finally out of the way, I’m going to re-focus on completing the cash out refi. Fingers crossed that the refi goes smoothly and I will be one step closer to pretirement/early FI. Once the refi is done, I really want to take a step back and STOP thinking about money…. It’s time for me to double up my efforts and to focus on other important aspects of my life. Ultimately, I’m on a search to find happiness and purpose with my life. 🙂

Fight On! 

{ 10 comments… add one }
  • writing2realityNo Gravatar January 29, 2015, 7:15 pm

    Congrats on finally closing. One more source of stress of your plate. On to the next aspect of your life!

    Given you’ve now closed and the ever changing rental market, what do you think your financials will look for this property if you decide to rent it?

    • FI FighterNo Gravatar January 29, 2015, 7:37 pm

      writing2reality,

      This property will definitely cash flow if we can locate a corporate tenant. At market rent, it’s close to break even… It will ultimately come down to the type of rehab we perform, which will have a large influence on rent.

      It does feel good to have this one wrapped up.

      Cheers!

  • Financial SamuraiNo Gravatar January 29, 2015, 7:26 pm

    Congrats!

    With this new property, may I sugges the following?

    1) Go back to work to build that cash flow and buffer
    2) Do not do a cash out refi and take on more debt!

    There is a huge risk that something will go wrong in the partnership which will cause a lot of stress. Think about it. You couldn’t buy property on your own, so you got a mortgage. That is normal, but you bought a lot of properties. But to then partner up with others and buy property and leave your job is very risky and could be the result of serious stress.

    Take it easier!

    • FI FighterNo Gravatar January 29, 2015, 7:43 pm

      Sam,

      Yeah, I’m with you and will most certainly be back to work… I’m just taking some time off right now and haven’t quit my job completely… I like the idea of working slightly longer to beef up the cash reservers… Right now, I just need some time off to recharge.

      The refi will let me build up a stronger cash buffer as well, which I feel will put my mind at greater ease… It’s sacrificing cash flow for more cash on hand, which I think can be very handy, especially if markets correct.

      In regards to risk, I do plan on earning income after leaving corporate engineering… At this point in time, I’m not certain what it is I will be doing, but I’m sure I will find something… This is a huge reason why I’m not too stressed out about leaving this job.

      I’m tired now, but I’m not the type to just sit around all day on idle hands. 🙂

      Cheers!

  • JohnNo Gravatar January 30, 2015, 1:37 pm

    Congratulations!
    A post on cash flow would be definitely interesting. I own my own place but never managed to get a rental property in the bay area since it was not cash flow positive 🙁 I know Sam brought his rentals many years ago so would be nice to see how your numbers on cash flow in this market.

    • FI FighterNo Gravatar January 31, 2015, 8:56 am

      John,

      Thanks! I will update with cash flow numbers once I have a better gauge on what the rents will be.

      It definitely is tough to find cash flow in the Bay Area.

      All the best!

  • No Nonsense LandlordNo Gravatar January 30, 2015, 11:30 pm

    I admire your courage and guts with your risky investments. They might work, but swinging for the fence every time leads to both strike outs and home runs.

    I would advise keep hitting singles and go for a longer run.

    • FI FighterNo Gravatar January 31, 2015, 9:02 am

      Eric,

      This will probably be my last deal in the Bay Area… With that said, it’s a tough situation to be in, regardless. If I invest locally, the prices are high and the cash flow is low. On the other hand, I can self manage and minimize a lot of outgoing expenses. Further, I can screen and handpick my own tenants. So far, I’ve had much better luck with finding quality local tenants.

      If I go out of state, the prices are cheaper so I can most likely find higher cash flow (on paper). But going out of state is not without risk either, and with that route I would again be 100% dependent on the PM out there… In the better neighborhoods out of state, once you tack on PM fees, the cash on cash returns aren’t outrageously better than the Bay Area anymore… The good areas have appreciated out of state as well, to some degree.

      In the current environment, it’s tough to buy REI if you live in an expensive local area. When you say hit singles, that’s kind of my plan moving forward… purchasing dividend growth stocks and staying liquid.

      Take care!

  • BeSmartRichNo Gravatar February 6, 2015, 7:52 am

    Wow. Congrats! I wish I was a handy man that can invest in housing markets.

    Wish you the best,

    BeSmartRich

  • MartinNo Gravatar February 6, 2015, 9:49 pm

    I am always amazed following your blog and seeing you sprinting towards your FI, fighter. I am happy for your next income machine added to your portfolio. Hope you will be able to post some pictures of the property before you rent it out (unless it is already rented and I am late to the party).

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