How I bought and cashflowed a 3 family rental in Buffalo NY

MY FIRST DEAL EVER

 The property was a large, victorian style, three storied wooden house on the west side of Buffalo. It was in solid shape structurally, but needed some serious interior and roof work. We purchased the property for $15,000 and paid off some back taxes for a total purchase price about $19,000. (This amount would perhaps buy the palm trees for landscaping a small property in my home state of Florida)

 REHAB AND CONVERSION: We approached the rehab as a chance to not only make the building livable, but to increase its value as well. We obviously needed to fix the roof, fix interior damage, redo kitchen and bathroom and the rest....but with some creative rehab work, we were able to utilize some floor space that was somewhat wasted, increasing the amount of livable space, and increasing the amount of rent we could collect. We turned one of the units from a three bedroom to a four bedroom, and made some other "living space adding" changes by moving walls, etc. This boosted our projected monthly rental income from what it would have been had we simply "fixed it up" - maybe $1,300, up to over $1725 - a 33% increase. For about $30,000 DASA properties rehabilitated the entire building, fixed all walls, floors, the roof, painted it, laid carpet, updated all plumbing and the kitchens, and got the electrical and heating systems in shape. This also covered the addition of extra living space. I was pretty shocked when I saw the finished product: a huge, spacious house, with gorgeous old wood inside, completely modernized and clean an new looking inside. In addition to being about 10 times larger than my own Manhattan apartment, it was worlds away from the half destroyed wreck that we had purchased. For several seconds I fantazized about moving into one of the massive four bedroom apartments myself and installing a gym and office, and perhaps a small basketball court.

REFINANCE One of the great things about rehabs is that you can change the value of the property. In this case, $19,000 of purchase price plus $30,000 in rehabilitation equaled $85,000 in new apprasial value. This is over $30,000 in created value that cost us no money and did not depend on appreciation or passage of time. (Kiyosaki says: Wise man makes money when he buys, not when he sells) Based on this new value, we were able to refinance this property at 70% of the appraised value, which gave us back over $55,000 - which was all of the money that we put into it.

RENTING IT OUT It took longer than expected to rent it out. Several tenants fell through - including one who paid the security deposit and then lost her job. It was almost 6 months after purchase that we had all three floors rented out. Two of the tenants have their rent paid in part by the government through a section 8 voucher. DASA properties is managing the rentals. Though it took a while, the property is now fully rented, for a total of $1725 per month. Our mortgage and taxes come to $600 per month, and we have another $600 per month in costs (including the electric bill we pay for two of the tenants). This leaves us over $500 a month in free cash flow.

Financially, this deal is a big winner, as we currently:

1) We keep >$500 a month in free cash flow.

2) There is NONE of our money tied up in the deal.

3) We have some equity still in the house

4) Every month the mortgage is getting smaller.

My partner and I have already put the money we pulled out into other deals, and currently own 2 properties together in Buffalo. I also own several other properties in Philadelphia. On allL these deals I will get my cash out within 6 months and still own the property and the positive cash flow.

This is an easy plan you can follow until you are rich. Two lessons for me on this deal were

1) I liked having a partner on my early deals.

2) look for situations where you can change the situation and add value - through rehab or addition of bedrooms, or something else that changes the value of a property.

I have had a great first year in real estate, which is very much connected to the knowledge and partnerships I have made through Partnerships for Profits. 

I plan on an even bigger year in 2005