My First Property

My First Property: Right rehab, wrong tenant
10 Jun 2014

My First Property: Right rehab, wrong tenant

Alex De Marco didn’t let negative opinions from his peers stop him from investing in real estate and for him, finding the perfect property came easily. It wasn’t until he became a landlord that this investor went from doing rehab repairs to replacing tenants.

GARD Pro Not Registered

Full name: Alex De Marco
Current location: Jersey City, NJ
First real investment: A half duplex townhome just outside of Pittsburgh, PA purchased in March 2011 for $8,500, now worth $25-30K

How did you decide where and what to buy?
My wife and I attended a local real estate education seminar advertised on the radio in May of 2009. The speakers at the event convinced us that real estate investing was a good idea.

We decided to learn the business by doing our own analysis and experimentation in addition to the advice we received from my wife’s cousin, a landlord, and other local investors that we met at ACRE, a real estate investing club in Pittsburgh where we were living at the time.

Not having a lot of money for this first investment and uninterested in borrowing from a bank during the financial crisis, we targeted neighborhoods where we could buy inexpensive properties, make minor repairs and then rent out. The goal was to have the monthly cashflow repay our out-of-pocket cash investment within 3-4 years.

I had just changed jobs, so I had some cash in my old 401K plan. I rolled it over into a self-directed IRA (SDIRA) and used it to buy our first property from a wholesaler, who we met at ACRE. The vacant property needed some renovations, but it was nothing we felt we could not handle.

GARD Pro Not Registered

Marco Before After House 5Jun2014 EC

How did you purchase and finance your first real estate investment?
We bought the property inside our SDIRA and used CamaPlan as our plan administrators. The wholesaler and settlement attorney made the transaction quite easy. They had recently done deals with buyers using their IRAs, so they were familiar with the process.

The seller was motivated and wanted out. For the acquisition, we bought the contract from the wholesaler, made a small downpayment and the seller financed the rest. They held a note secured by a mortgage on the fixed-up and no-longer-vacant property for a couple of years.

The repairs were done by contractors and service providers who were paid in cash from the SDIRA. All I needed to do was fill out some forms and attach invoices and receipts authorizing the IRA administrators to pay the contractors.

Did you encounter any issues before or after closing?
The transactions and repairs were a breeze. The problems began when I signed a lease with my first tenant. I guess all landlords have tenant horror stories, but this problematic situation really was my fault.

I was not strict enough in my tenant screening process and was too eager to get someone in the property. Unfortunately, I ended up having to evict her within a few months and pay for additional repairs after she trashed the place.

I have since decided to use a property management firm to screen future tenants and have been much happier and productive this way. I get to do more of what I enjoy, which is buying “neighborhood eyesore” properties, fixing them up and turning them into safe, clean and affordable housing.

Marco Before After Kitchen 5Jun2014 EC

What was the biggest challenge in buying your first piece of real estate?
The biggest challenge was overcoming my own fear. Early on, I dealt with negativity from naysayers telling me why investing in real estate was a bad idea and that fueled my fear and anxiety about pulling the trigger.

The reality is that most people don’t know what they are talking about. They, or someone they know, may have been burned in the past because they were emotionally attached and didn’t think of it as a business, didn’t plan for the unexpected (i.e. inadequate cash reserves) or they didn’t educate themselves about the local market and financial analysis required to determine if an investment opportunity is a good deal or not.

Furthermore, I learned a great deal by attending monthly real estate investor meetups and going to inexpensive seminars. There are also a lot of online communities like BiggerPockets that are great resources for investors.

My First Property: Focus on finding the one
31 Jan 2014

My First Property: Focus on finding the one

Ezra M. Brathwaite spent many long days doing a lot of research to find and secure his first wholesale deal. Being an REO property, it took 3 months to close on the transaction but his patience and focus ultimately paid off.

GARD Pro Not Registered

Full name: Ezra M. Brathwaite
Current location: Queens, NY
First real estate investment: A 2 family home used by one family located in Brooklyn, NY purchased in January 2013 with a value of $170K-$230K and now worth $300K-$400K.

How did you decide where and what to buy?
I knew I wanted to purchase a single family home in either financial or physical distress in the boroughs of Queens or Brooklyn, NY. I began researching the price, location and the amount of cash deals occurring for homes in these conditions and found most of which were in lower to middle class areas. After locating a property, I planned to wholesale it. That is, assign it to another buyer and earn a profit for finding and putting the property under contract with the seller.

How did you know this particular property was available?
This was an off-market probate opportunity that I found through direct mail marketing and was able to purchase through a partner and investor/buyer.

How did you purchase and finance your first real estate investment?
I purchased this home through a legal entity to limit personal liability and maximize tax advantages. This particular wholesale property deal required no financing because the exit strategy was to assign the contract to another investor. The only financing used was to market and set up simple business systems to find the property.

Did you encounter any issues before or after closing?
The only issue I had was the length of the closing process. Because the contracts had to be settled in court, it took about 3 months to close.

GARD Pro Not Registered

Looking back, is there anything you would have done differently?
There are 2 things I would have done differently.

First, I would not have spent so much money marketing for buyers because buyers are easy to find once you have great deal.

And second, I would not have attempted to wholesale an REO property from the bank on my first real estate transaction. Banks have strict rules against wholesaling and unless you have at least $250K-$300K in disposable investment income, it can become costly. They demand higher earnest money deposits – anywhere from 3-10% of purchase price with the repair costs for REOs estimated at a higher price and there can be many bidding wars among buyers.

What was the biggest challenge in buying your first piece of real estate?

The biggest challenge was the amount of time and research it took to to buy and sell the property. First, I had to identify and market to the largest lead source – absentee owners.

Then, I had to get a business contact phone number, buy lists of property owners and type out the right letter script to contact them. After that, I outsourced the mailing to 3rd party companies, took calls from potential sellers and weeded out the motivated sellers from the non-market or off the market deals.

Through it all, I would constantly have to remind myself that it’s a numbers game and all I needed was one motivated owner to agree to sell their house.

Photo by: Charlie the Cheeky Monkey.

Rehab doubles after repairs
15 Mar 2013

Rehab doubles after repairs

Cole Melcher of Premier Properties of Nashville seemed to have gotten lucky with his first rehab project: the perfect house, great loan terms, and a valuation that more than doubled the initial purchase price after repairs.

GARD Pro Not Registered

Name: Cole Melcher
Current location: Nashville, TN
First real estate investment: A 3-bedroom 2-bath home built in 1958 and located in Madison, TN. It was bought in January 2012 for $60K and is currently valued at $145K to $150K.

How did you know that this particular property was available?
I wanted to make sure that I found the perfect property for my first rehab to help minimize the potential of losing money on the deal. I searched for about 6 months and eventually found one on the Housing and Urban Development’s (HUD) website.

It was a foreclosure that was in really bad shape. HUD does its own building inspections when they foreclose but I ordered one as well and compared the two.

before and after 1

How did you finance your first real estate investment?
I financed this property with a conventional loan for the house and a construction loan to cover the cost of the repairs. The lender required a complete list and description of what I was planning to do to the house. I then had the house appraised based on those repairs to determine the after-repair value.

GARD Pro Not Registered

Can you tell us more about your loans?
I found an amazing local bank that was willing to finance the deal without needing a large down payment and had really good terms. First State Bank lent me the money, and they required 15% down on the initial loan of the house and no down payment for the construction portion. I put down 15% of my own money from savings to secure it.

You might think that this put the bank in a high loan-to-value (LTV) situation but by the time the rehab was done, the house was worth a lot more than the total balance of the loan – at about 71% LTV.

What was the biggest challenge in buying your first piece of real estate?
The biggest challenge was staying on schedule. I had initially created a ballpark estimate of the time needed on each project but found that some tasks took more time than originally planned.

Also, when you start tearing down walls and pulling up floors, unexpected things are bound to happen. For example, when ripping up the vinyl flooring in the bathroom, I found that the subfloor had rotted out and needed to be replaced.

before and after 2

If there was one thing that you’ve learned from your first deal, what was it?
I really enjoyed my first rehab but I found that I am great at doing some things myself and not so great at doing others. In the future, I plan on hiring someone else to do those things and factor that added expense into the budget.

I have also found that many people seem to look down on real estate investors. People think that investors take a property from someone who can’t afford it and then make money from their misfortunes. I completely disagree with that sentiment.

Investors acquire properties from people who have already lost it, or help people prevent a foreclosure by buying it from them before they actually lose their home. The investor is taking a risk and deserves to be compensated for it.

before and after 3

When I started fixing up this house, I found that all the neighbors around me started doing things to improve the look of their houses, like fixing broken shutters, cleaning up the landscaping, and cutting down dead trees. One even had their house painted because they didn’t want mine to look better than theirs.

Rehabbers bring property values up. Rehabbers buy houses that no one else wants and turn them into a house that anybody would be proud to live in.

My First Property: Overpaying $10K
01 Mar 2013

My First Property: Overpaying $10K

Dustin Long of Boticelli Holdings loves his hometown of Rochester, New York so much that he ran for mayor in 2011. In 2012, he began his real estate investing journey through an owner financed rental, which has provided him the chance to implement positive community changes, including stipends for the local farmer’s market for his tenants.

GARD Pro Not Registered

Name: Dustin Long
Current location: Rochester, NY
First real estate investment: A 3-bedroom-1.5-bath single family in Rochester, New York bought in April 2012 for $39.9K and now worth about $47.5K.

How did you decide where to buy and what to buy in that location? 
My wife and I started renting a few rooms in our house in January 2012. We quickly saw the benefit of being paid to live in our house instead of having to pay for it!

We wanted something local that we could manage ourselves.

We didn’t have much in terms of credit so we needed to look for something that was owner financed. Out of the few options we had, we picked one where we could afford the 20% down payment. We wanted something local that we could manage ourselves, and after seeing the positive cash flow of the property, we pulled the trigger.

How did you know this particular property was available? 
We started looking for owner financed homes on Craigslist, and we were able to purchase a house directly from the owner. I went through the house with my brother who is an electrician and we found it to be quite sound. My wife and I also inspected it ourselves and the owner offered a 6-month warranty on any major repairs.

GARD Pro Not Registered


How did you finance your first real estate investment? 
We didn’t have much wiggle room in terms of the offer. The owner wouldn’t budge a dollar on the  price and since he was the financier, we had no choice.

We came up with 20% for the down payment while the owner held the remaining balance for 30 years at 12% interest. It took us a little over a year to save what we needed and we used our tax return to make up the difference.

Did you encounter any issues before or after closing? 
There weren’t really any issues to speak of except that the seller hit us with extra costs. The fact that there was a $400 fee for the deed in lieu of a foreclosure escrow account, and that we would be responsible for it, was not disclosed to us until we were at the closing table. We also had to pay all the sellers’ costs.

The good news was that property was already rented, so we received income from it the day we bought it.

If there was one thing that you’ve learned from your first deal, what was it? 
One thing I learned is that I probably overpaid on my first investment. My next acquisition was only a few houses away for a very similar property for $10K less. However, it was the only way we could get the first rental so it was worth it to us, and I would rather make something than nothing.

The biggest challenge then, as well as now, is the financing.

The biggest challenge then, as well as now, is the financing. To overcome it, we chose the only path available to us: owner financing. One of the things I would have done differently, however, is to make sure I talked more with the tenants to get their true feelings about the property before committing to purchase it.

I also would have liked a better rate but I quickly learned how to deal with that as well. With our first loan payment, I included $1,339.64 additional for the principal portion of the loan. This instantly knocked off $21,795.18 in interest and trimmed 5 years and 10 months off the loan.

More challenges also came 2 months later when the renter lost his job and was behind on rent for a while. My friends and family told me to evict him but I could tell he was not going to run from me. As of today, he is 100% paid up and even wants to buy the house!

My First Property: A year-long limbo lien
05 Feb 2013

My First Property: A year-long limbo lien

Kenneth Elshoff started his first real estate transaction with some challenges in a wholesale deal. Thankfully, his mentors Mark Fichtner and Aaron Chaney at Penn Pioneer Enterprises were there to guide him through it.

GARD Pro Not Registered

Name: Kenneth Elshoff
Current location: Pittsburg, PA
First real estate investment: a wholesale deal in Pittsburgh, PA last December 2012. Initial valuation of $90K but purchased for $50K, and now valued at $260K. Currently being remodeled.

How did you decide where to buy and what to buy in that location?
My first transaction was a wholesale deal. I located a motivated seller, negotiated a low purchase price and got it under contract, and then sold my rights on the contract to a flipper.

Motivated sellers willing to sell their properties at huge discounts can be found a number of ways. In this case, I mailed “We Buy Houses” advertisements to homeowners who had fallen behind on their property tax payments. In Pittsburgh, I was targeting up-and-coming neighborhoods (for flip candidates) and blue collar neighborhoods (for rental candidates).

My first deal came down to the property being in a great neighborhood for flips The owner called me and we met at a cozy coffee shop to negotiate. I never really had any intention of getting the price as low as I eventually did; I was merely experimenting with some negotiating tactics I had learned about from other investors and from the real estate investing forum at BiggerPockets. In essence, this was a negotiation “practice run”.

I never really had any intention of getting the price as low as I eventually did.

GARD Pro Not Registered

How did you finance your first real estate investment?
Once I had the property under contract, I sold my rights to purchase the property to another investor who took over my position and closed on it. The investor also happened to be my mentor so it was a great deal for both of us! Because I sold the contract rights, I didn’t actually take ownership of the property and therefore didn’t need to attain financing for it.

That’s the beauty of wholesaling. Wholesaling is often pitched to new investors as being a great way to get started in real estate investing because of its low overhead and potential profits. I paid for a list of leads, a printer, paper, ink, and sent out my ads for a total of only a few hundred dollars and still ended up walking away with $5K. Not bad for a few hundred dollar investment and a bit of time!

Did you encounter any issues before or after closing?
Wholesalers often don’t get paid until the deal closes. In my first deal, a married couple had purchased the house, got divorced, and even though the wife got the house in the divorce, the ex-husband ended up causing a lien to be put on the property. This one lien delayed the closing for an entire year!

Additionally, the divorced couple complicated the issue because neither party was willing to pay the money to get rid of the lien. We tried several methods (phone calls, emails, letters, etc.) to resolve the dispute but nothing worked.

The biggest lesson for me was that wholesaling isn’t as easy as many gurus make it out to be.

After a number of months, our patience grew thin and we were left with two rather aggressive options. First was to submit a letter to the county treasurer’s office to request the property to be accelerated to a sheriff’s sale, where we would bid on it and hopefully get it for a lower price than we had agreed to in the contract. The other option was to sue the seller to enforce the sales contract (effectively forcing them to pay off the lien whether they liked it or not).

Luckily, reason took over and the sellers agreed to pay the lien off, allowing the purchase to go forward.

What was the biggest challenge in buying your first piece of real estate?
The biggest challenge for me was learning the process of how to make a wholesale deal work. Information found online and in books can lay out the process in its basic format, but actually doing it and learning what documents are required (not the generic contracts found in books!), what negotiation tactics really worked, how liens can be negotiated down, etc. were challenging.

On top of that, I had to explain the entire process to the seller and come across as confident so my newness wouldn’t scare her off. Luckily, I had two local wholesalers who mentored me through the whole process. I wouldn’t have identified the good deal, effectively negotiated, nor known what to do with the property once I got it under contract if it was not for them. In fact, if it weren’t for my mentors, I wouldn’t have gotten into wholesaling at all.

If there was one thing that you’ve learned from your first deal, what was it?
The biggest lesson for me was that wholesaling isn’t as easy as many gurus make it out to be. It takes a lot of hard work and time to make deals happen, but with patience – and a good mentor if you are lucky enough to have one – you can be successful.

In terms of what I would do differently next time, I would have to say that I would negotiate harder. I stopped negotiating when we got to the price of $50K, but I am confident I could have gotten her down to $45K.

Enhanced by Zemanta