About three weeks ago, Selenid and I viewed a great rental property that was up for sale. We put a competitive offer on it…and then lost it to another buyer. However, 2 weeks later, the selling relator reached out as the buyers financing fell through. They would take our previous offer if we agreed.

Good deal right?

Actually…yes. I still believe this was a great rental property. However, Selenid and I turned it down and passed. What?!

In the spirit of total transparency, I want to walk through this deal, including an analysis of the numbers involved, as well as the reasons why we turned down this potentially great rental property to add to our portfolio of 8 other properties.

Let’s start with the property and a deal analysis

The property itself is a duplex with a 3 bedroom upper unit and 2 bedroom lower unit. It is just down the street from many of our other properties, including our 5th investment property. It also included a large yard and an adjacent lot that was not developed abutting a Main Street in the area.

So we were excited about the potential when we initially found this one.

So let’s look at the numbers.

First, a primer…

As always, before going into the rental property deal analysis itself, I’d recommend you read this post on my analysis strategies first if you haven’t already. 

But, I’ll give a quick recap as a refresher.

• We invest in multifamily cash flowing rental investment properties using a Buy, Fix, Rent, and Hold model
• To screen investment properties, I use the 1% rule (Monthly rent/Purchase price >/= 1%)
  • If it meets criteria, I move forward to more analysis
  • If it doesn’t meet criteria, I move on to another property
• To analyze investment properties, I use cash-on-cash return (Annual Net Income/Money Out of Your Pocket >/= 10%)
  • If it meets criteria, I lock up the property by placing an offer based on your criteria
  • If it doesn’t meet criteria, I move on to another property
• To valuate investment properties, I use NOI (Annual Income not including financing)
  • Estimated Sale Price = NOI/X% (based on local market data, usually 8%)

---

Remember, you can download our free Cash Cow app on iPhone or Android here to help you analyze deals on the go!

---

We are going to pick things up in the analysis stage. My wife and I had already screened this property when our agents sent it to us and it more than met the 1% rule. So we moved forward for further in depth analysis.

Initial investment property deal analysis

Here’s what our initial analysis looked like:

Please also note that screenshots of our financial property analyses are adapted from the Semi-Retired MD calculator from their course that Selenid and I took. More info here!

This analysis was based on the following assumptions that we made after walking through the property with our investor real estate agent:

• The asking price was $185,000; we knew this was listed way at about market value based on our other properties. We also knew from our agent that the seller was looking to sell quick for personal financial reasons. We estimated we could get the property for around $175,000.
• We estimated about $25,000 in necessary renovation/rehab. Both the upper and lower vacant units had been recently renovated but we knew we would likely replace carpet for flooring in one unit to start and need some other upgrades over time.
• We conservatively estimated rents of $1050 for the 2 bedroom unit and $1150 for the 3 bedroom unit based on our knowledge of rental prices in the area. These were underestimates.
• We got our mortgage terms and closing costs for our lender. You can see that the rate is still higher than our other properties at 6.5%!
• The insurance terms were from our insurance broker and the taxes were from the county open access database.
• Utilities were estimated based on our experience as we would only be responsible for water. Each tenants would pay their own gas and electric.
• Property management and turnover fees were based on known fees based on our prior properties using self management with Hemlane as our management platform.
• Keep in mind that we knew from our previous experience with our other 6 properties, that self managing with a platform like Hemlane is super easy (contact me for a referral). (Here is a primer of successfully self managing a property.) We also knew leasing costs for each unit would be less, around $600. 
• Vacancy rates and maintenance costs are general estimates.

Based on this, the cash-on-cash return was an estimated 11.5%!

Based on our goal of 10% or greater cash-on-cash return, this met our criteria. It didn’t obliterate it, but this represented a solid opportunity. Especially in a market that has got tighter. Plus we would own a second lot that we could build on in the future if we wanted to…

In fact, this property and analysis are great reminders that good deals are still out there!

So why did we pass on this great rental property investment?!

I’m not going to lie. It was very hard to pass on this one. Our reasons had nothing to do with the property itself actually. In fact, they really only had to do with our own financial and life plan.

As you will see below as I go through our reasons, we actually are using the money we would have used for this property to buy a liability, not an asset. This may be the first time in a long time that we are not making the right financial move (at least on paper).

I know this seems backwards. Let me explain…

Reason #1 – We had other uses for the money earmarked

We have 2 big purchases coming up based on the financial goals we laid out years ago when Selenid and I developed our financial plan.

These two big purchases are: A new car and a home renovation.

You may recall that my doctor car is, well, not really a doctor car. The plan for this car was to use it for 5-6 years after training. During that time, we would buy Selenid’s car which we initially leased. We did that in 2023. Then, we would save to buy a new car to replace mine. Selenid would get the new car and I would get her car, a Kia Telluride. So, new car time it is. And we are going big, getting a Cadillac Escalade.

Second, we are renovating our basement, adding a bedroom which is needed as we have no guest room currently. We are also turning the unfinished area of our basement into a combined work out area and batting cage for the kids. This is a dream that I have wanted to do for our kids since I had boys.

Reason #2 – There are no called strikes in investing

Yes, this was a great potential property to add to our portfolio.

But it won’t be the last one. By a long shot. Passing own this one because the time is just not right has no impact on our ability to add more great rentals in the future.

This was by far the harder reason for me in particular to pass on this opportunity. I will nearly always prioritize the future at expense of the present if left to my own devices. I went back and forth on this for a long time until Selenid sat me down to look over our written financial plan.

In that written plan is our financial goals. And both our plan for the car and for the renovation were right there. Meanwhile, we were reaching all of our other goals for our money. Further, as this recent post shows, we are ahead of our plan to reach FIRE.

We heavily prioritized investing for the future and building real estate in the first 5 years of my being an attending. And this put us in a great position. It is time for us to prioritize the present (while still maxing out retirement accounts, paying off our mortgage early, and creating alternative streams of income through side gigs and real estate)…

What would you do?

That’s the beautiful thing about the path to financial freedom.

There are many right answers. To be sure there are wrong answers. But there are many ways to get to your financial goals and live life on your own terms.

Sometimes that may even mean prioritizing the now in expense of the future when you have already set a healthy path for future financial freedom.

It’s a lesson I am still working on learning…

And if you are looking to get started on or to optimize your personalized path to financial freedom, check out my best-selling book, Money Matters in Medicine!

What do you think? Would you pass on this great rental property opportunity? Why or why not? What are your financial goals? Let me know in the comments below!