NOVA Deal - Learned a Few Things

[William Lunsford]

Hey Everyone,

I am moving to NOVA with the military and got a house locked up. I have purchased 2 homes in the past and really had no investment lens at all when I made the buys...just bought what felt good for the family. My first purchase was in '04.  I sold the house for a $10K loss in '07 and was happy with that (tons of foreclosures around me), but looking back, I wished I had kept it and made it a rental. Fast-forward 4 years.  I bought a short sale in FL, still had no clue at all what I was doing, but made some upgrades and profited $35K.  I have been in HI for the past 2 years and my friend who is an avid BP listener and investor (5 homes now) has been encouraging me to do real estate.

For the past 8 months I have been spending all my free time reading, listening to BP podcasts, learning as much as possible and understanding that REI is the way to go to build true wealth. So for my home purchase this move, I made sure my agent knew I wanted a property that had value/potential. I analyzed about 75 deals in NOVA, and let me tell you, this market is crazy, tough and damn near impossible to cash flow on. I did, however, narrow down my home purchase to two potential properties.

Property 1 was listed about $100K under market and my agent was confident I could have gotten it for about $150K under market. I would have had to sink about $100K back into it so my equity position would have been about $50K. It needed a lot of work and I would have been house hacking through remodeling for 3 years while living in it (basement, kitchen, bathrooms, windows, roof, electrical, plumbing, etc).

Property 2 was listed for $539K, about $60K under median home price for the neighborhood ($600-$700K).  It was also about $11K under recently sold comp prices which were $550K. My agent and I were able to negotiate a sales price of $525K plus $5K towards closing, so all said, I got the home for about $30K less than comps. The only thing this house needs is a basement build out which will cost about $15K if I do myself and my agent is confident I can easily get $600K for the house on the resale. I feel great about this home, it's under market, it gives me a good start on house hacking, it gives my wife and kids a complete place to live with minimal work and the location is killer (by a college, 5 min from downtown, easy access to freeways but private streets, the list goes on and on). The only negative is that I want to hold this house long term but NOVA real estate is difficult to do that with. I will, however, be looking at my options when I depart NOVA to determine if holding under negative cash flow is worth it based on market appreciation + what I can rent it for. I can clear my P&I / Ins / Taxes but the maintenance and mgmt fees will turn me negative.

With all that being said, I am happy for BP and this community. Had I not been learning what I learned over the last 6 mo's I would have never analyzed 75 deals to know what a good property looked like. So here are some of my lessons learned on this deal:

1. How to determine what under market looked like

2. How to figure out financing (I had to find a solution for the construction cost & potential refi on Property 1. This was a huge pain but I now have solutions for future investment properties).

3. How to negotiate, while I may have been able to get more, I feel that I provided the seller with a fair price.  I am happy, they are happy, my agent is happy and everyone feels like we won.

4. How to roughly evaluate remodeling cost. I used the remodeling estimate book on BP when running through this to get my rough estimate and called some local contractors to ensure I was properly tracking.

5. How to analyze properties for cash flow. I built a massive spreadsheet with all my calculations...it's easy to use and I will apply it to future investments.

All and all I am looking forward to my basement build and the future this property holds. My exit strategies at this point are to house hack and sell for a small profit or hold long term and determine if the negative cash flow will be worth my time based on long-term appreciation rates and how the market looks in 3-4 years. Thanks for reading!