Bought My First Rental Property...

[Jose Garza]

Hello everybody, My name is Jose and I am new to this site. I live in Houston, Texas and have decided to diversify my investments into real estate. A littlebit about myself. I am 32 yrs old, married and have two kids. I am architect who has over 7 years experience in the high end residential and commercial. I have parted from Architecture for the time being and with my current work, I have some time to look into real estate. I am fluent in spanish, both oral and written, which give me a good negotiating advantage with the subcontractors in my state. I have always been intererested in real estate and finally decided to jump in. I just received word that the bank accepted my offer for an older home. I am excited but nervouse at the same time. I have never closed on a home before and I wanted to ask what are the things that I need to look out for before I sign? I asked my real estate agent if we were going to have an final inspection before I sign and he said yes. I guess I am a little nervouse of something that may be wrong on the house that I don't already know. Is there anything else you guys recommend that I need to look out for?

Thank You!

Jose

[Erik Kubec]

Congrats! I was super nervous my first time.

First of all, source and hire your own building inspector--don't have your agent recommend one. And be prepared to walk away from the deal. For your first deal, there is no way to avoid the emotion roller coaster ride you will be on, and your agent and loan officer know it better than you, and will use this to close you--regardless if whether this is a good investment or not.

In Adams County, Colorado, bentonite soils can cause massive foundation issues, and foundation issues are expensive/impossible to fix (especially on bad soil)

After that, I would look closely at electrical. Especially since it is an older home. No grounds, crappy breaker box, no gfci's, aluminum wire, cracked old wire are all possible problems. And likely it will have way too few circuits and outlets for modern usage. If you rehab it up to code, you likely will need new service, new breaker box and 2x to 3x the number of circuits. For example, I bough a house that had one circuit serving the entire kitchen (dishwasher, outlets, garbage disposal, fridge, microwave) when it really needed about 5 circuits.

Things like asbestos, mold and meth damage are 'walk away' items.

After that, items like furnace, water heater and plumbing fixtures.

Oh, hire $99 rooter to come and scope the sewer line as well. That could be a $10k fix if it needs replaced.

Another good exercise to 'practice' walking away from the deal emotionally. Play it out in your mind as you go through your day. If you can't stand the idea of walking away from this house because you are emotionally attached--this is a danger sign. Keep practicing until you can be less emotional about it.

Then, start quantifying your 'walk away' point.

How much are you budgeting for renovations / remodel? Add 33% to whatever number you come up with and that is what your real budget should be. How much over your renovation budget will trigger your walk-away decision?

In fact, you could use this as a trial-run:go through all the motions and then walk away over something in the inspection. Do this for the same reason there are pre-season games in football. Analyze your agent and more importantly, yourself, during this time to learn how you act and react.