Things No One Tells You When You Buy Your First Long Distance Property

Introduction

It was more than 5 years or 21 doors back when I bought my first long distance property but I still remember it as if it was yesterday. I remember the nervous excitement similar to what you feel during your first wedding! 😉It was always on my mind to write down my feelings and my learnings, finally a 17 hour flight is what it took to pen this down.

Everyone tells you about how you have to run your numbers, or how you have to do your due diligence on a particular city/zip code where you are planning to buy a rental property or how you negotiate with the buyer. But no one tells you about the emotional roller coaster journey that you will have from the time your offer is accepted to your property is rented and stabilized. In this article I will try to list some of these "hidden" feelings..

Now one disclaimer here, not everyone reading this will have or would have had all of the below experiences...as they say mileage can vary.

The Setup

You have spent 6 months listening to real estate podcast and talking to other investors who are ahead in the journey and you are convinced that investing in real estate is a no-brainer. You have decided on a city/state and spoke to a bunch of real estate agents and property managers which you got referrals from Biggerpocket forums and are working with a investor friendly agent who has diligently spent lot of time to show you properties over video calls. And after looking at few properties over few months period, you like a turnkey-ish property with some basic touch up needed and you put in an offer at asking or 3-5% above asking or 3-5% below asking depending upon on what part of market cycle you are in(I had put 3-5% below asking). Then a couple of hours later your agent calls you and says those magical words which are going to change the course of your life.."You offer is accepted"!

The Ride Begins

The absolute first thing that hits you is a sudden increase in your heart rate and a feeling of adrenaline rush. I still remember I was driving to work when my agent had given the news and I am sure every other investor remembers where they were at that moment. Gradually as hours go by here are the list of things that will happen...

I think I am paying a lot more/this is the worst decision of my life

Here is the truth, you will get this feeling of overpaying even on your 10th or 15th deal as well! But I have seen many first time investors get cold feet and have backed out at this point which is also very similar to cold feet some get during their wedding day. But many of you dare devils get on top of this fear and read through the contract and after making sure everything looks fine you sign the contract and make it official! Level 1 fear conquered.

Many times you might share this news with your friends/family who are not into real estate investing or who are not on Biggerpockets and they convince you that this the worst decision of your life and you have to back out of this asap. You start doubting yourself and if your wife/spouse/partner is not on the same page then things become even more tough. A good investor/human friendly agent might help you with calming your nerves down and making your rational brain start functioning plus talking to other investors through BP forums can also help!

Reading The book on rental property investing by Brandon Turner will also help you be confident in your decision.

The book on rental property investing

Inspection report will scare the s*** out of you

The inspection report no matter how harmless it is will scare the shit out of you.

Inspection reports done by good inspectors will point out all that could go wrong and list any minor cosmetic issues as well. And as a new investor reading an inspection report will scare the shit out of you and might make you feel that the house is in a very bad state! :) I considered BP forums as my mentor during this time and had pasted parts of inspection reports on forums and got very detailed responses from experienced investors which helped me calm my nerves. Will highly recommend using BP forums to get anything clarified. Also understanding the basics of rehab by reading books like "Estimating rehab cost" will help you weed out what are the important points and what can be ignored.

As a first time investor having inspection contingency is a must, infact no matter how savvy an investor you become you should always have some sort of inspection contingency (In the past few years you would have seen many sight unseen/As-IS offers but these were the exceptions and not the norm). And don't be shy to go back to the seller with a list of things to repair if there are some repairs that were not anticipated by you or your agent.

My personal advice: Always do sewer scope to check and make sure the sewer link is clear, trust me this will be the best 200-300$ you will spend on this purchase. Sewer line repairs are one of the most expensive items on a rental property along with roof and hvac.

The book on estimating the rehab cost by J Scott is a must read to conquer this fear.
The book on estimating rehab costs

Feeling of being dumb for not knowing real estate jargons

Many a times the real estate agents, lenders, title company assume that you know all the real estate jargons/terminology e.g.HUD disclosure, Title insurance etc and throw this during your normal conversations and you might feel dumb for not knowing them but we all have been in this shoes and you should take this opportunity to stop and ask questions starting with.."This might be a stupid question but what do you mean by ______"

Challenge with trusting your agent

Since this is the first time you are working with your agent no matter how rock star he/she is, there will be moments where you might feel if they are trustworthy. Actually this works both ways, the agent has spent a lot of time on you and he/she needs to make sure you are worth the time. Take this deal to establish a rapport and set out well defined expectations. TRUST is the most important challenge in long distance investing and once you solve the trust puzzle other pieces can fall in place little more easily.

Also try to make an effort to connect at a personal level but genuine empathy. Real estate business is all about building long term friendships/relationships with folks you can trust. Of course in this journey there will be folks who might fail on the trust test and don't be afraid to end the relationship when things don't work out.

Fear of failure

When you are out of your comfort zone or you are in unknown territory, evolution has made your brain think of all the different ways you can fail (in older times this helped humans from getting eaten by predators) and that is the reason your brain goes in overdrive to think of scenarios where this deal might not work. This is a great strength and something you should always try to have! Fear of failure is a good thing and helps you be on your toes all the time and can help you find your blind spots!

Learnings

imagining worst case scenario is a good exercise, my worst case scenario was that the rental property does not get rented or for some reason the numbers don't work and I will have to sell the property at 5% discount and I might loose 15-20k but if it works I will get my principal back in 3-5 years plus 12-15% appreciation. As Mohnish Pabrai said "Heads I win a lot - tails I don't lose much". My first rental property eventually did much better than that but that truly is a random event and I claim no credit for that.

At the end of the day, there is still a leap of faith that everyone needs to take and that is the thrill of long distance investing and life in general. There is so much randomness by design in the universe that you have to calculate the odds of success and just roll the dice and play!

Regards,

Gorden Lopes

The Small & Mighty Investor*

*The term "The Small Mighty Investor" is the title of Coach Carson's upcoming book.