The Journey to My First Deal - Part 1

This is the first of a series of posts that I plan to write explaining my experience obtaining my first deal (which is a house-hack). I really enjoy the BP community and I benefitted so much from the podcasts, books, forums, and articles of community members. As wonderful and helpful as the material is, it can also be overwhelming because you can feel both encouraged and completely out of your league. There’s an emotional side to it that gets overlooked. So, I figured I’d start writing posts about the path of getting my first deal. My path was very conventional and didn’t involve any exotic techniques. I hope this encourages all the real newbies (like me, with 1 deal or less) who are just starting out. My posts will have shout-outs to the particular BP books and other real estate books I used before finally closing on my first deal in January of this year.

In mid-2016 I decided I was ready to look for a home to buy. Early on, I was considering a condo; however, given that I was a single guy, I figured I could be smarter with my decision and think bigger. Thus, I made the decision to buy a small multi-family property (i.e. 2 – 4 units). Interesting side note, years ago I had a co-worker who owned SEVERAL investment properties. She was very low-key about it and basically began her real estate investing by house-hacking over 20 years ago. I remember her encouraging me to start with a multi-family home. Well, I made the decision in mid-2016 and began my education in earnest. Virtually ALL my real estate investment knowledge initially came from searching Google. What I noticed is that the source of the information came from Bigger Pockets. I got curious and explore the websites, where I found out there was a podcast. I started listening to the podcasts (starting at show #1), during my commute to work. Listening to the Podcasts was completely encouraging, but a bit overwhelming at times because there are some wild success stories on there. Believe it or not, one of my favorite podcasts was Podcast #4 with Frank Gallinelli. He’s all about the numbers! I was encouraged to buy his book What Every Real Estate Investor Needs to Know About Cash Flow…and 36 Other Key Financial Measures. I believe this book will always be one of my key reference books as long as I’m an investor. The other book that was part of building my core knowledge was Managing Rental Properties by Brandon and Heather Turner. I realized early on that since I was going for a small multi-family I didn’t need to overdo it. I also quickly identified the key financial metrics that were SUPER important to me to get started: Debt Coverage Ratio and Cash Flow. I will revisit these in later posts when I discuss my deal economics.

Now, to address the emotions of searching for my deal. I found my deal through a real estate agent – not commercial broker, not a multi-family specialist, no direct mail, etc. I went to a regular real estate agent who specialized in residential real estate. She helped me find the condo that I was currently renting and I was sure she we would a great agent who would work hard for me. Besides, since I was armed with the knowledge to analyze a deal myself I wasn’t looking for an agent that helped me analyze a deal, I just needed an agent who gave me access to the MLS! So, my search began in earnest in February 2017. I met with my agent and discuss with her what I was looking for. The first two months of my search I was loving it! Having access to the MLS was much better than searching on Zillow, Trulia, etc. There were so many homes to go through and I also began my search when the season was picking up in Chicago. My agent encouraged me to go out and see properties on the weekend with her. I would go see homes and realize that often times, they were nothing like their MLS listing. Anyhow, I also learned that I wasn’t the ONLY person looking for a small multi-family. There were tons of people searching. I discovered very quickly that if a deal was good, I wasn’t the only person that noticed it. Needless to say, my search took almost the entire year. That was one of my first lessons: Be Patient! I had a great agent who did not push me at all.

I searched intensely from March through around July, but I didn’t find a deal. From July on, I relaxed my searched. I would look at the MLS, but, as my agent told me, the hot season was dying down. So, kept an eye on the MLS, but it was clear that fewer new homes were being listed daily. By this point, I was getting completely discouraged for a number of reasons. One, I felt like I was out of my league as some deals that I wanted were won with all cash offers. I also was wrestling with the confidence to deal with the most minor rehabs of any type. I looked at 2, 3 and 4 family homes, but could never find anything that made sense financially. I started second guessing myself and wondering if this was a waste of time. Fast forward to November of 2017 and I was on the MLS one day and saw this new listing for a duplex. The price was EXTREMELY low for the condition of the home, so I was suspicious. I was able to schedule a visit the next day and it was as good as advertised. I also recognized that the winning bid for the home would be well above the asking price. Why? Because the numbers worked entirely too well and I knew that other investors saw that as well. In addition, the home was only 10 years old! The deal went on the market on Thursday and best/final offer was due by that Sunday – only 4 days on the market. I put in an offer that was 12% above the list price! The duplex was listed at $308,000 and I put in an offer for $345,000. I will speak more about my deal analysis in the next post, but suffice to say, I knew the list price was WELL under market. Within the span of 4 days, the home received 11 offers. The duplex was taken off the market on Sunday and on Monday night, I received the good news that my offer was accepted! And here’s the kicker – I wasn’t the highest offer. The seller simply liked that my offer package was complete. My offer package included the following: offer letter, my mortgage pre-approval, and the earnest money check. That’s it. Apparently, the seller’s agent received offers that were a few sentences in an email.

The duplex was owned by the church and had been converted into a single family home when it housed several priests at one time. It was now down to 1 priest so they were looking to sell it. Each unit contains 3 beds/2 baths and there is a finished basement. There’s a spacious backyard as well as a two-car garage. The duplex was 10 years old and, while it was in good condition, it needed some work to modernize it a bit and to attract renters. So, while it was technically rent-ready, I knew that I was going to have to do some renovations to get to the market rent level that I wanted. I got the home under contract in mid-November and closed in January. That’s it! In my next post, I will go into my deal economics more given that I didn’t have any inherited tenants. Not having tenants gave me even more anxiety since this was my first deal and I would have to find a tenant by myself. Please look out for my next post as I go into some of the numbers and my renovations that ended up becoming far more major than anticipated. Please feel free to ask me questions and I’ll fill in any gaps in my story. This was more of an narrative than an analysis by design. I hope it encourages those newbies that are in the beginning of their search or are about to begin their search. You can do this!