I said no the first time he called.
I had previously interviewed him for a property manager position. We did not end up hiring him. He later moved out of the Wilmington market. We stayed on good terms and occasionally crossed paths.
When he decided he no longer wanted to own rental property in the Castle Hayne area, he called me first. My initial reaction was to pass. I had just closed Deal #8 and was not in an urgent rush to deploy more capital.
Then I looked closer at the numbers.
The property had a tenant in place on Section 8. The current rent was $1,800 per month. Market Section 8 rent for that property was $2,087 per month. The deal did not cash flow at $1,800. But the moment I was legally permitted to raise the rent, it would.
That rent gap was the deal. Not a renovation. Not a forced appreciation play. Just a clear, low-risk path to more income, and all the equity that comes with it.
I called him back.
This post is part of my First 10 Real Estate Deals series, where I break down what actually happened, not polished success stories.
👉 First 10 Real Estate Deals -- Series Hub
Deal Snapshot
Item | Details |
|---|---|
Property | 124 Hampton Drive, Castle Hayne NC |
Year / Market | 2024 -- New Hanover County, NC |
Property Type | Single-family, 3 bed / 1 bath |
Purchase Date | November 8, 2024 |
Purchase Price | $225,000 |
Down Payment | $56,250 (25%) |
Make-Ready Work | $10,000 |
Total Cash Invested | $66,250 |
Loan Amount | $168,750 at 6.375% |
Monthly P&I | $1,052.78 |
Rent at Purchase | $1,800/month (Section 8) |
Current Rent | $2,087/month |
Fair Market Value | $248,000 |
Immediate Equity at Purchase | ~$23,000 |
Strategy | Off-market, rent repositioning |
The Story
How I Found the Deal
This deal never hit the market. It came from a relationship built through a hiring process that did not end in a hire.
That is not unusual. Most of my best deals have come from people, not listings. Deal #4 came from a wholesaler connection. Deal #6 came from a friend I served with in the Marine Corps. Deal #9 came from someone I interviewed for a job.
Relationships create deal flow. That is not a platitude. It is a pattern I have seen repeat across every stage of this portfolio.
Due Diligence
The property came with some administrative problems I identified before closing and resolved before signing.
No valid lease in place
No security deposit held by the seller
Section 8 housing authority was unaware of the missing lease
I spoke directly with the tenant, confirmed she was willing to sign a new lease and provide a security deposit, coordinated with the housing authority on the rent increase timeline, and confirmed the adjustment process. Once all of those were confirmed, I moved forward.
The HVAC system was approximately 30 years old. I chose not to replace it before closing, built that cost into my capital reserve, and planned to replace it when it failed. That is exactly what happened.
Financing and Execution
25% down on a $225,000 purchase. $10,000 in make-ready work. $168,750 loan at 6.375%, 30-year fixed. Monthly P&I of $1,052.78. Total cash out of pocket: $66,250.
The execution had two phases. Phase one: hold the property for four months at $1,800/month as required by Section 8 guidelines before a rent increase could be processed. Phase two: submit the rent increase, adjust to $2,087/month, formalize the lease, and stabilize.
Both phases executed exactly as planned.
Financials (Reality Check)
Acquisition
Purchase Price: $225,000
Down Payment: $56,250 (25%)
Make-Ready Work: $10,000
Total Cash Invested: $66,250
Loan Amount: $168,750 at 6.375%
Monthly P&I: $1,052.78
Immediate Equity at Purchase: ~$23,000
Current Performance
Monthly Rent: $2,087
Vacancy Rate: None so far! Great Section 8 Tenant in place
Monthly Expenses: $678.55
Monthly NOI: $1,304.10
Monthly Debt Service: $1,052.78
Monthly Cash Flow (BTCF): $251.32
Annual Cash Flow: $3,015.87
Equity and Total Return (Year 1)
Appreciation: $10,912
Loan Paydown: $1,931
Cash Flow: $3,016
Total Return: $15,859
Investor Metrics
Cash-on-Cash Return: 4.6%
Total ROI: 23.9%
Effective Annual ROI: 16.7% (23.9% / 1.43 years)
DSCR: 1.24
The strong DSCR of 1.24 means this property generates 24% more NOI than required to service the debt, creating a meaningful cushion for expense surprises. The 4.6% cash-on-cash return reflects the first year of operations, which included a four-month rent-hold period at a below-market rate.
Wins and Losses: My Lessons Learned
Lesson 1: Relationships Create Opportunities That Listings Cannot
This deal was never available to anyone else. It came from a relationship I had maintained professionally. I was the first call when he was ready to sell. You cannot manufacture that kind of deal flow. You build it over time.
Lesson 2: Rent Gaps Are One of the Safest Ways to Create Value
This deal had no renovation risk, no construction timeline, and no permitting exposure. The entire value creation strategy came from identifying a rent below market and executing a straightforward increase through established Section 8 processes. That is as clean as value-add investing gets.
Lesson 3: Solve Problems Before You Close
No lease, no deposit, and administrative gaps with the housing authority. I found all of it during due diligence, addressed each one directly, and confirmed everything before signing. That removed uncertainty and turned potential problems into known, resolved items.
Lesson 4: Section 8 Is a Powerful Tool If You Understand It
Many investors avoid Section 8 because they do not understand the process. If you understand the rent schedules, inspection requirements, increase timing rules, and how to work with your local housing authority, Section 8 can deliver reliable, government-backed rent with a tenant who has a strong incentive to maintain their housing status.
Lesson 5: Property Management Quality Creates Real, Measurable Value
The tenant had a poor experience with the previous owner. After we took over, we communicated clearly and fixed issues quickly. When the HVAC failed, we replaced the entire system without delay. She has told us multiple times how much she values renting from us. That is not just good service. That is an asset protection strategy.
How This Deal Changed My Future Deals
I became more systematic about screening off-market deals for rent gaps before evaluating renovation potential
I refined my due diligence checklist for tenant-occupied properties to include lease status, deposit documentation, and housing authority records
I deepened my understanding of Section 8 rent schedules and increase timelines as a value creation tool
Would I Do This Deal Again?
Yes. Strong cash flow, immediate equity, low execution risk, and a relationship-driven opportunity that never competed with other buyers. This is exactly the type of deal I am looking to repeat.
Key Takeaways
Relationships create deal flow that listings cannot replicate
Rent gaps create equity without renovation risk
Solve administrative and tenant issues before closing, not after
Section 8 is a legitimate investment strategy if you understand the process
Property management quality is an asset protection strategy, not just a service
A base hit executed well compounds into real wealth
What is Next
In Deal #10, I close out this series with a property in Castle Hayne where I applied the most important lessons from the nine deals before it. Before I closed, I confirmed the addition with the county. I underwrote conservatively. I adapted when the leasing strategy changed. And despite execution challenges, the deal performed.
👉 Deal #10: When Experience Starts Compounding
Looking back at the previous deal in this series: Deal #8: When Discipline Beats Excitement
If you want to evaluate deals the way I do today, download my Real Estate Investing Analyzer + Deal Analysis Video.
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