My Very First Deal, a Rough Non Conforming Duplex

[Darrin Gross]

My Very First Deal

By day, I am employed as a Property & Casualty (P&C) Insurance Producer. My very first Real Estate investment was the result of an real estate investor, calling in for insurance for a property.  This client started with one little run down house and immediately called me almost daily to add additional properties to his insurance policy, Yeah!

Most of these were a little rough, cough, cough, and required the best of my 8th grade photography class lessons to manipulate the depth of field to get the shadows just right, so to not draw unwanted attention to the subtle property nuances my underwriter would rather not see. But, he was growing, and so was I.

After watching him grow and create significant positive cash flow, I finally asked him how I could get started? At that moment, little did I know, we were standing in the driveway of my first investment property.  A non conforming duplex.  

He said, “I’l sell you this one” for $120,000. Now I wanted to get going in the real estate game, but this was not what I had planned. This was a rough property, and clearly beneath me.

A couple weeks later my client told me how he had a new commercial property he wanted to buy, but needed $10,000 to make the deal go.  

I got out my yellow legal pad and a calculator, and worked and worked trying to make the numbers add up.  They just did not add up, until I reverse engineered the numbers.

What the seller needed was $10,000.  

If he would take less, and he got his $10,000 and carried the mortgage, the numbers could work.  

So, I got my nerve up, and offered my client $100,000 with $10,000 down, cash I did not have, but I could access through a line of credit, if he would carry the balance as a first mortgage. He agreed, and one week later I became a landlord.

Man was I scared! This property was rough! The tenants scared me! I had no idea what I was doing! I hired a property management firm to handle the rent collection, and they managed to get paid like they were supposed to, me not so much.

Immediately after being hired as my property manager, they did a property inspection and informed me of a “soft floor” in the bathroom of one of the units. My thought was, “as opposed to a ???”.

Fortunately, I had a friend with a garage full of tools he was too happy to use on my projects. I called him, and for a hamburger and some beer, he agreed to spend an entire Saturday with me fixing a “soft floor” in the bathroom. It was scary. The tenants were grateful, and after the repair, I realized, being a landlord was more than going to the mailbox for the rent check.

My new status as a landlord put me in conversations with other clients who wanted to get into the real estate game. One of which was a contractor client that had tools, know how and no money.

I explained how the numbers worked and offered him my new rental for $135,000.  He was in.  We just needed to find him the money he needed to buy.  

He qualified for a 80% first mortgage – 108,000 which paid off my $82,000 mortgage.  My 1st mortgage holder agreed to carry a 2nd for $27,000 and I carried a note for the closing cost of $3,500.

In 7 months I cleared $35,000 before taxes for doing nothing more than I normally did. My eyes were opened and I was hooked.