Rookie Mistakes & Lessons Learned

[Isoke Craig]

Often successful stories are shared & while we can learn from wins, I often find I learn more lessons from failure. So I wanted to share my experience with the community. Thanks for reading this is long! Buckle up!

I am a REI rookie I want to get a tri/quadplex as my first deal and house hack it. I have learned to run the numbers, saved, and now actively searching on and off-mkt for a deal.

I have been beat out on a couple deals now so when I saw a triplex in a university area I was pretty gung ho (first at the open house and then in submitting an FHA asking price offer after running optimistic numbers). This was my first mistake. I did notice major issues at the open house but I have heard stories that fha appraisals were so much stricter than regular appraisals I thought that would protect me. WRONG!! I calculated my offer by running the value of my comps, not as an estimate with cost of repairs.

My inspector saw the major issues. All the major MEP was marked deficient in the inspection report. Foundation; bad on both structures. Electrical; illegal and exposed wiring on exterior, knob & tube wiring in the attic, galvanized plumbing, old roof and mold in the one tenant occupied unit. At this point I should have run for the hills. But I had a 2.75 APR 30yr loan and excited to finally be under contract.

My rookie REI realtor only sent the roof quote to sellers before my 4day option period ended (they agreed to pay for a new roof-10k). I got quotes for foundation- 20k, electrical- 14k but my realtor also assured me of the fha appraisal and stated the appraiser would note these issues and we shouldn't try to negotiate again before the appraisal.

The appraisal came back at asking and they did not note a single issue with the house. They literally took pictures that didn't show the meter out of the panel box, much less the foundation or mold issues. The comps for rent & sales were not comparable. I pointed this out to my bank and they sent a note to the appraiser stating the issues and attached my realtors comparable comps. They didn't do a formal appeal and when I asked why they said they just don't as nothing good will come from it (deal will likely fall through).

The appraiser stated he didn't see any issues I pointed out and left the property value high and the rental comps low. He didn't want to use our comps. I had zero leverage to bargain with the sellers and ended up losing escrow.

Lessons learned 1) Run worst-case and conservative analysis. 2) Negotiate at every stage of the process as you find new information. 3) The only person that cares about your money is you so ask for what you want from the members of your team (realtor, banker) 4) Most important there will be setbacks in RE. Learn & continue moving forward.

Thanks for reading!