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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.

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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.

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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.