My first real estate deal was the sight-unseen purchase of a single-family residential 4-bedroom 3-bathroom in the Kenneth City area of Saint Petersburg, FL. I worked with an agent who had 20 years of experience in the St. Pete area, and remotely we looked at homes through video chat while she told me all the good things and bad things about all the homes that we were looking at.
Previously, I had only visited St. Pete for a short weekend trip before I decided to invest in the area.
When I first found the home, the homeowner had listed it at $340,000. The price was well out of my range, and not within the figure I could offer that wouldn’t insult the seller. Fast forward 3 months, as I continued to look at other homes, the homeowner continued to lower the price of the home by $10,000 month after month. In January the home listed for $320,000, in February $310,000, and I realized that I had a motivated seller.
I put in an offer for $280,000, an offer I’d find out the homeowner had already turned down when she first listed the house in November of 2020. I wrote the homeowner a letter along with my offer, and I made sure to have a pre-approval letter from a lender ready for my agent. The homeowner responded with a counteroffer of $287,000.
I thought this was still a good price for the home. The home was a 2,250 square foot property just 15 minutes from Downtown St. Pete and St. Pete Beach, and had lots of potential for forced equity. Calculated by price per square foot, it was coming in far lower than the average of $200 per square foot that the other homes I was considering purchasing in the market.
I went forward with the deal.
Inspection phase
I scheduled an inspection date, and had both the inspector and a contractor come out to the property at the same time. This is always a good idea because whatever the inspector finds the contractor can immediately give you a bid on. Some investors even have multiple contractors come out at the same time so that they can bid amongst each other. The goal here was to have enough to work with in terms of necessary labor so that whatever the inspector found and whatever the contractor quoted me I could go back and revise my offer.
The inspector found electrical and plumbing issues, pest issues, and a leaking roof. I revised my offer for $20,000 less than the original $287,000. Instead of accepting the offer, the homeowner agreed to repair and fix all of these problems and that we would stay at the original agreed upon price. I thought this was fair considering the price per square food I was getting the home for.
I estimated that renovations would cost roughly $30,000 and would add considerable equity to the home. Extra renovations I considered were replacing a drop ceiling in the garage conversion, the demolition of a wall that separated the kitchen with one of the living rooms, and a shower remodel.
We continued on with the process agreeing that the homeowner would make the necessary fixes to the home.
The lending process
Because I had just started a new W2 job with no recent income history, I had to have a family member co-sign on the loan with me. I was able to lock in a rate for a conventional 30-year mortgage at 2.875%. The lending process went mostly as planned, but was delayed 2 weeks. I put 14% down on the home, giving me a PMI (mortgage insurance) of roughly $40 per month. My mortgage, including taxes and insurance, came in at $1300 per month. Because I reside in the home, but because I have a cosigner on the loan who does not live on the property, I can only declare a 50% homestead exception. The other 50% is considered as a rental property.
Renovating & discovering issues with the home
I started renovations about two weeks after I moved into the property. I shopped around for contractors and got 3 different quotes about the kinds of work I wanted to do on the property. Renovating a 2,250 square foot home can be expensive, especially considering the amount of materials it takes to put in all new floorings and paint every single wall in the house.
I was quoted $45,000 by one contractor, then $36,000, then $26,000 by another. I considered the reviews and the number of years in business by each contractor and decided to go with the cheapest one. The flooring being the most expensive item for each bid. The second most expensive item was the paint, then the removal of a drop ceiling and a demolition of a wall to open up the space between the living room and kitchen.
They always say budget 15-20% of the cost of whatever the contractor quotes you, add that to your final amount, and that will be what the job will cost. This was true for me as well. The contractors discovered electrical issues in the wall we tore down, which were live, unsecured wires that were clearly a fire hazard and an electrician needed to be called in to fix the issue. Plumbing issues were discovered with a toilet that would overflow. A plumber needed to be called in to address the issue before we could proceed with the bathroom remodel. Removing a wall-length mirror in the bathroom revealed drywall that had molded and needed to be replaced. Removing the laminate flooring revealed uneven tile flooring that needed to be torn out before the new vinyl flooring could be put installed.
This brought the total cost of the renovation up to $35,000 in the end, including materials, which still put me in the lower end of the other contractor’s bids.
The contractor I chose was able to start immediately. Renovations were done in two and half weeks from commencement.
Renting the home
I wrote about what is referred to as house-hacking in a separate article. I chose to live in the home and rent out the other 3 bedrooms. When I first priced the rooms and put up an ad online, I received dozens of requests in the first day of having the ad up. At the time of this writing, there is a housing crisis in St. Pete. Homes are very hard to come by, and over the last year, rents have increased 30% in the Tampa Bay area.
I rented out the three rooms for $2,550. My taxes and insurance have since increased, and I pay $1,430 per month now, including my mortgage. That leaves me with roughly $1,100 dollars a month in cash flow. Once utilities and bills are paid, my cash flow is between $600-800 given the time of year. So as well as living on the property without any expenses, I make a minimum of $7,000 a year in passive income.
I was able to rent the rooms just two weeks after finishing renovations on the property.
Overall experience
I’m happy with my decision to purchase the home. I had the home renovated and rented within a month after I closed on the property. Now I sit on a property worth almost $200,000 more than what I paid for it. I have tenants that I like living with and yearly rental income of over $30,000. I am able to write off depreciation on the home and save on taxes. I have other plans for the home in the not too distant future such as putting on a new roof and solar panels, and an upgraded HVAC system. The property sits on a 11,000 square foot lot, and I plan on doing some renovations to the rear lawn such as maybe putting in a pool or even building another unit. I intend to hold onto the property, and perhaps at a later date, do a 1031 exchange into a bigger home with the increase in value I built up from renovating the property.
Over the course of 20 years, if I do in fact hold onto the property for that long, I will make close to $1,000,000 in total profit when sold.
I love the home. It is spacious, on a large lot, and close to amenities. It is in a yet-to-be-developed part of St. Petersburg. I like having tenants who pay my living expenses.
My only regret comes from the renovation process. I’ve written an article about all the necessary things you need to look out for when working with a contractor, what you need to be aware of, how the contract should be written out, and how you can hold the contractor accountable during the renovation process. Many investors consider contractors to be the hardest part of the job. But you need them in order to build your business and have any success in real estate.
To wrap it all up, if I could do this deal all over again, I would. I’m happy with the outcome. Seeing as how it was my first deal, I feel as though it went very well.
Whenever I feel as though things aren’t going to plan, I think of this deal and realize that I have it in me to identify good deals, follow through, and see it from beginning to end with whatever problems may come up during the process.
