My first dive into real estate. What not to do for beginners

[Michael West]

Hi everyone, I hope you all are doing well during these times. I just wanted to make my first ever post here by sharing a story about my own start in the real estate investing world and hopefully inspire some other new investors to feel a bit more confident in themselves and teach a few lessons to avoid from my own experience. I am by no means a hard core investor with dozens to hundreds of deals under my belt, but I surely will strive to achieve my own lofty goals. I would still consider myself a newby, but, as you'll see with this story, one with apparently more experience than I gave myself credit for...until recently. I tend to be a bit wordy with any story I tell, so bear with me as it is a long one.

Fresh out of high school in 2006 I was fortunate enough to get started with my Carpenter apprenticeship in the Detroit local. After only a short time in the union I was DETERMINED to buy my own house. It wasn't that I was quick to be out of my parents house, but that I wanted to make them proud and be the first of any person I knew that was my age to do so. While many of my friends chose to party their lives away, I wanted to show them the results of what staying focused could produce. Instead of buying toys and booze, I saved nearly 75- 80% of all that I made to put towards a house, thanks to living with my mom during the that time.

2008, I was ready to be a new home buyer. So, I got pre-approved for a loan, and honestly didn't know **** about what that meant. I thought meant I was guaranteed to get a loan. I was shocked in the first place since I hadn't even had any luck with credit cards! I found a sign on a house advertising an auction site and decided to look on their website to see what they had. I found a house that I fell in love with. It needed major remodeling, the roof was collapsed over the family room, the plumbing was a wreck, horribly outdated, but it was in the most desired neighborhood on my list. Over time, I knew it would be a beautiful place to call home and one that could make me even more money when I was ready to sell.

I didn't know anything about auctions, except that the website told me that I needed a 5% or 5k down payment in cash/cashier's check upon winning bid. So, what did I do? I pulled out 5k in cash, put it in an envelope and went to a different house in Detroit, that appeared to be in need of a bulldozer, where the auction was held. I set myself a limit to bid of $85,000. It just seemed like a good number at the time. A couple of my friends came along to support me, as I was quite a bit nervous about it and boy, did we look out of place from the clearly seasoned investors present.

I watched as a few houses went up before my target, the auctioneer rambling off the numbers every bit the same as they were portrayed in the movies. I could barely understand what was going on, but I could feel my blood rushing through my veins as he announced my target was next. The bidding started at $15k. A handful of other investors raised their hands one after the next and the next thing I knew it raised to $55. Only three others were bidding now, slightly slower it seemed, and I decided it was my time to join in. $60k I offered, and I could feel their stare as this teenager in a "Death" band hoody joined into their war.

After only 2 more raises, it was left between one other man and myself. $75, 78, 80, 82, 85. "$85 thousand going once... Going twice... " I had it in my grasp, and I must have visibly been shaking at this point. "$87!" The man said, while staring me down. I was done. Outbid at the last second. And yet, I breathed a sigh of relief... I knew I was in over my head. But more than I even knew at the time.

I didn't know how auctions were ran, I just went there with the mindset that my cash down payment and pre-approval were enough to seal the deal. (Side note. That house sold for somewhere around 220k after rehab)

About 2 weeks later I went to an open house only a few blocks from my mom's place and put in an offer with the Realtor on site at their asking price. I still hadn't been working with a realtor of my own. (Major lesson number two). The offer was accepted and now the actual approval and underwriting begun. A couple weeks later, I get a phone call, it's the manager of the lending facility. Turns out that they fired my loan officer and upon review they can not approve me for a loan as, surprise surprise, I didn't have enough credit history.

I was completely crushed. Twice, I felt that I had lost a house of my dreams, and now it would be "Who knows?" until I would be able to even try to get one. I felt my dream was shattered. 19 years old... I had a hell of a lot to learn. The lender told me that I had no credit history, and I asked.... "Well, how do I earn credit?" My first step in the right direction to make it happen. He told me to make sure my bills were put in my name, then after a couple months to apply for as many credit cards as it takes until one accepts me. Use it. Pay it off each month and repeat. And eventually it worked.

It's April 2009, and with a full year nearly to the date of actively working on my credit (and saving up even more capital), I renewed my search for my first property. This time, I found an agent to work with who helped me out more than I could have imagined and a lender who actually verified my credit and income information. Together we got an offer accepted on a foreclosed property, right down the street from the house I tried to auction for and for 10k under the bank's asking... at my goal of $85,000. We decided on an FHA loan to lower my down payment and keep more of my capital for some of the rehabs that were required... And the closing costs that I never knew existed a year earlier.

I'm not going to lie... The closing process was a ridiculously stressful time for me for a variety of reasons, but we made it through. In July we closed, the house was mine. I moved in right away, and also had two of my friends each rent a room from me nearly immediately. Everyone wanted out of their parents houses at this time, and my 3 bedroom bungalow with a full basement had everyone's eye. A month before my 21st birthday. My first investment- househacking my primary, before I ever knew it was a thing. More from this in my next post, this one has been far long enough, but I thank you, truly, for taking the time out to read this. As young, and new investors- please take these lessons to heart and do your due diligence before getting started to avoid these horrible mistakes, but don't be afraid to get started, you will always learn as you go.