my first deal [duplex, cleveland]

[Albert L.]

First deal is in the books! Let's go!

Background:

In just a little less than 3 months, I was so fortunate to have been able to purchase my first rental property. Years ago, I had read Gary Keller's Millionaire Real Estate Investor and many years before that, Rich Dad Poor Dad but I came to the same conclusion after reading both books:

I live in California and I don't have enough capital to get started! Pass.

The curiosity remained however and the spark burned just long enough till September 2018 where a couple inspirational events led me to taking massive action on getting this first deal done. The two events were nothing extraordinary: I chatted with a friend who had already been doing OOS (out-of-state) investing and attended a webinar on BiggerPockets for real estate investing newbies. Those two events was enough for me draw a line in the sand and say, alright how can I make this thing happen?

Here are a few other things that helped along the way:

Have A Mission: Have a big enough reason WHY you're doing this. Is your why big enough? Is it important enough to sustain you pass the first 2 weeks where everything might seem exciting because it's new? When you're alone and frustrated, what's your internal source of motivation for wanting to continue?

Set Goals: Nothing new here. We all know this but we don't take it seriously enough. Have a short and long term goal in mind. Otherwise you'll just be adrift in sea feeling like paddling furiously but getting absolutely nowhere.

Build Daily Habits: Look at deals and educate yourself.

When I looked through my rental property calculator to see how many deals I had to analyze, it was somewhere in the low 200's. You have to look at deals, every single day especially as you're starting out and especially if you're doing it OOS. When I chose Cleveland as my market, I had no clue that there was a West and a East side and within the West side, what was truly a B class neighborhood vs a C, D and even F. Looking at hundreds of deals helped me narrow down not just the neighborhoods, but also the blocks and streets within those and what rental prices each area fetched. This will take time and it should! Overtime, it'll feel weird to not look at a listing and run the numbers on it.

Educating yourself is a no-brainer. In fact it's probably the easiest part of this whole journey. Here's what I'll say about that - don't just read a book or listen to a podcast and do nothing after. Apply the knowledge. To take it one step farther, only read books (or parts of the book) that you know will be helpful for that stage of the journey. For example, right after I selected Cleveland as my first market, I had to re-read David Green's book on Long Distance Real Estate Investing and in particular, the parts about building a team and copying the email templates he used in reaching out.

Meet Experienced Investors and Ask Questions: When I got started, I realized I was one of the few, if not the only person in my immediate circle of friends that was interested in real estate investing. But as I started to become more active on BiggerPockets and made it more known that I was serious about investing, that circle slowly started to expand and through just a few additional introductions, I had met a couple other OOS investors that were local to the Bay Area who were happy to share about their experience investing in Cleveland and the connections they had made. It's incredible to see how giving people are of their time and knowledge, especially to newbies like myself. It's truly a gift that keeps on giving.

Stay Objective and... Calculators are your friend. This is somewhat more controversial to rely so heavily on numbers but for a newbie, it was way easier to have a black and white picture on whether a deal made sense or not for my criteria. 90% of the time, the numbers didn't look good but when it did, I had the confidence to know that there might be something here and that it was go-time to have my realtor visit the property and make a verbal offer.

...Be Confident: One of the biggest mental breakthroughs I had was when my mentor told me to just start making offers if the numbers and property looked good. Simple enough of an advice right? I did at one point suffer from analysis paralysis and it took a simple and straightforward piece of encouragement for me to realize that I was too early on in the process to not be making more offers. He said, "Remember, don't say no for them. If they accept it, great there's still a mountain of due diligence and negotiations that you'll have go through. If not, move on to the next."

Alright, enough with the fluffy mumbo jumbo, here's the deal.

The Deal:

Market:

Choosing Cleveland came down to a couple things:

-I had people I could trust already investing in those areas so I knew I could learn from them and rely on their advice

-I had a strict criteria of finding a duplex as my first deal and there was an ample amount of those in B-/C+ neighborhoods

-There was decent job stability in overall city though I still have some reservations around the declining population growth

-There was 4 unique economies where there wasn't one economy that had more than 25% of the industry share

-The purchase prices was affordable and within the budget I was comfortable investing with

-The median income to rent ratio was right around 30%

The House:

How: Automated listing on the MLS. It was listed earlier in the year and re-listed at a lower price. I ran the numbers and it met the 12% CoC return and min $200/month in cash flow I wanted to see. This was only after I asked a few other local investors on how unrealistic I was in expecting a 20% CoC return and they helped re-set my expectations to expect closer to 10-12%.

I asked my realtor to schedule a showing which he was able to do within a couple days. We did a live walk through through the property and he gave me some suggestions on how much I may have to expect for repairs. The biggest expense he felt (and later validated with the inspector) was a roof replacement which I factored into my numbers. Otherwise, it was a safe area with a long term tenant downstairs paying market rent and an upstairs unit that only needed some minor repairs to make rent-ready.

Where: West Cleveland in the Jefferson/Westpark neighborhood. Just west of 117th st where I had gotten advice from local investors, property managers and agents to focus more on.

Negotiations: My agent and I looked at the history of listings for this property and felt it was appropriate to come in low. In 2017, it was listed at 73k then in Oct 2018, at 90k then in Nov, 82k. There were only minor improvements made to the house since 2017 so we offered at 69k knowing we had some leverage in how desperate the seller was. Plus, the numbers only made sense at sub 70's and surprisingly enough, the seller accepted. After inspections and the appraisal was finished, we asked the seller to repair the back porch (which was around 1k) which they also agreed to. As each stage of the process progressed we learned more and more about the seller's motivation to want to find a new profession outside of landlording and needing cash as soon as possible to get started.

Financing: 25% Conventional loan with local mortgage company who was recommended to me. I would highly recommend this for any newbies as they act as a second level of accountability with the appraisal.

Numbers: https://www.biggerpockets.com/calculators/shared/593575/6fff95cb-b69b-4222-b630-1cd95ad24878

I think that covers most of what I wanted to share with this first one.

Hope that helps somebody! Feel free to message me if you have questions, feedback for me or anything else.

Cheers