Bad First Investment - Newbie Beware

[Chibuzor Alumba]

My very first deal:

Purchase price: $205,000

Down payment: 11% + 2% closing costs

House Type: Single Family

Sqft: 678 (WHAT? This isn't even a tight market nor a great neighbourhood. How did I get sold this crap lol)

Location: Winnipeg, Canada

How it all started:

My wife and I wanted to get our own home after living with parents and being able to save considerable amounts of money.

At about that time, I started listening to BP and seeing how all of these investors were succeeding with real estate. I almost immediately caught the real estate bug.

I found an agent who prided herself as being 'one of the best'. 

That said, she let us know that she would NOT write lowball offers or negotiate aggressively below the fair market value of a property.

At this point newbies, thank the realtor for their time, go to your local real estate facebook group, and say 'I need recommendations for an investor-friendly realtor to help negotiate aggressively and find me cashflowing investment properties'.

Look at a few of the recommendations you get, contact the realtors, and ask them to give you examples of live deals they've done, when it occurred, and what the purchase price, rehab numbers, cashflow numbers, and after repair value was. If you like what you hear, try them out.

Moving on... we bought the 678sqft home with scratched up hardwood floors, an old kitchen and bathroom, old rugs in the basement, and a green second bathroom in the basement (yes, its green).

This was a great home for just my wife and I. We didn't need much space, we rarely went to the basement, and all was great in the world.

So what's the problem Chibuzor? Life is great, the home is great, right?

WRONG.

Then came the time for us to buy another home and rent out our 678sqft home.

Every single tenant that came in complained about the small size, the narrow kitchen space leading to the basement, the old kitchen layout and style, the old rugs in the basement, etc.

Our plan was to use the home as an Airbnb since it was 5 minutes from the airport.

In reality, we could not use the house as an Airbnb As-is. We had to put 20k in to update the house, most of which we will never get back as equity because the homes in the area have a price cap.

Quick summary of why this was a bad investment:

1. Bought too high, ZERO equity (negative equity really)

2. House is in bad aesthetic condition ( Cannot be used as a regular rental or Airbnb without substantial work done)

3. House does not cashflow by itself. At the price we bought it for, i.e. $205,000, with rents being ~$1100 max in the area, and the house being so small, even if we got $1100 for the property, we would be breaking even on our Mortgage and Property Tax, and would have to pay from our pockets if any repairs need to be made.

For next time (Note: we already bought our second home the exact same way, and only realized our mistake when trying to rent out the first. Someone please help me take out emotions from this real estate journey):

1. I will take a moment to define what I consider to be an acceptable purchase price, equity, and cashflow in my area

2. I will go on my local facebook real estate group and ask for an investor-friendly agent, interview them, find one I like, and tell them my criteria

3. I will tell everyone I meet at local real estate events what I am looking for (Make sure you are pre-approved and can act on a deal, if not people wont trust you or refer deals to you if you cannot close deals)

4. Done

Hope this was helpful. I appreciate any comments.