Details of My First Deal

MY FIRST DEAL  

I don’t know what took me so long, but once I was finished being a carefree, young adult, I was hungry to purchase my first rental house. It was 2015, I was 32 with a great boyfriend, and had about $40,000 saved for a down payment. For my entire life my parents have owned rentals, but now it was time for me to purchase my own property. I was eager and would have bought any standing structure, but my conservative dad wouldn’t let me. He knew that with some creativeness, we could find something better than any MLS listing I pulled up on my Redfin app.

LESSON: Spend time learning about real estate and design your life so that you can put away money for a down payment. Be patient.

PRIMARY HOME OR RENTAL PROPERTY FIRST

My first purchase was this rental, not my primary home. In fact, I love renting. At the time, I was renting the basement of my friend’s house for an incredible deal in the best neighborhood in Seattle, and purchased this rental house in a suburb 60 miles north of Seattle. Being single (ish) and not requiring much space or wanting much responsibility, renting is a great option (I always found a stellar deal with friends or a mother-in-law basement apartment). Even when I am ready to buy my primary home, it will be purchased in a way to have great rental numbers so I can eventually turn it into a cash flowing rental.

LESSON: Buy an investment over a primary home. And buy your primary home like it were an investment. You will never regret buying a good investment.

FINDING THE OFF MARKET DEAL

My dad’s tenant and friend actually found this property while out walking her dog. She was friendly with the neighbor, and noticed his house was vacant and that he’d only come by occasionally. Come to find out the owner had moved in with his new wife and was slowly moving out of this home of 20 years. So my dad told him that I was interested and that I would purchase it as-is. This house was perfect for me because 1) Location. It is just two doors down from my dad’s 4 fourplexes, 2) Age. It was built in 1990, so not too old, 3) Model. It is a 3 bedroom, 2 bath, 2 car garage, perfect, standard rental home in this market, 4) Off market deal. So we know we weren’t paying retail or paying for agents or anything else.

LESSON: Walk the neighborhood that interests you, and talk to all the people you see around their homes. Bonus is that you get exercise and the chance to listen to Bigger Pockets podcasts.

OFF MARKET DEAL 

For this 3/2, 1300 SF house with hardwood floors and a 2 car garage on a nice fenced lot, I paid $182,500. The number I had in my head and the deal I wanted was $180,000, so when the seller went through the numbers and discounts to come up with $182,500, I was happy and agreed. I paid all my closing costs, accepted the house as-is, and did not do an inspection. If he were to make the home sparkle and sell it on the MLS, he probably could have fetched $205k - $210k. A year later now, Zillow and Redfin say that the house is worth $225k. I'm happy with the deal.

We used a real estate agent friend who did the entire deal for both parties for $1000. This basically insured that we had solid MLS paperwork, and all she had to do was file it for us. We also have a good relationship with the local title company, and that came in very useful at closing.

LESSON: Foster great relationships with people in the industry. Even if you don’t use them regularly, they are good to have in your back pocket.

The Rental House

THE FINANCING 

After shopping around, I noticed that everyone ended up being about the same rate and same fees, so I went with my local Chase bank assuming that a big bank would be the most competent. I was wrong. I had to call my broker almost daily to remind him that I had sent him the paperwork he requested (always immediately), and then call him back days later to confirm that he processed it. Then I would call the underwriter in Arizona to make sure he actually got all the paperwork from the broker. I’m not sure why they deserved any fee, because I felt like I was doing all the work. We had to extend closing because of their slowness, and also for the appraisal. The appraiser failed to see the carbon monoxide tester in the house, failed to bring it up to the owner who was home at the time, and then I had to wait and was charged for a second visit. The detector was there the entire time, he just never saw it. Chase said they would refund me for the second visit, but never did.

LESSON: Find a mortgage broker that comes highly recommended, and interview the person you will work with, not just the establishment and their rates.

THE MORTGAGE 

I had the 20% down payment so I did not have to pay for mortgage insurance (thank goodness). The big questions was going with a 15 year loan versus a 30 year loan. My conservative father nudged me towards a 15 year. This was before my Bigger Pockets days, and I didn’t know anything else or have any calculators to explain to me other expenses and the cost of vacancy. With a 15 year loan, I saw that my monthly mortgage payment was going to be $1300, and I knew if I tried really hard that I could get $1450 for rent. $150 monthly cash flow, right?! I did like the idea of a lower interest rate and owning a property free and clear in just 15 years. While I technically lose money every month on the property (because of expenses), I am fortunate to have a W2 income that can cover anything, and I consider it just a cost of investing for my retirement. My dad’s theory is that if I can have four houses all paid off (one that I live in and three rentals), then I am all set for retirement (maybe a couple more houses for all the future traveling I want to do with my future family). That doesn’t sound like a bad plan to me, it just takes some saving for a down payment now and 15 years of time waiting.

LESSON: Figure out your goals. Do you want cash flow now or retirement later? And be smart and use smarter calculators.

THE CLOSING 

I almost lost the deal because the seller was tired of waiting for me, and started to believe that my financing would fail. I had to get my dad’s real estate lawyer involved, and he called the mortgage broker telling him that there could be consequences if the deal fell through because of their delay. Everyone was screaming at the mortgage broker by the 44th day (even my flat fee agent), and I had to close on day 45. Once I got to the title company (who was so kind to us by squeezing us in and rushing all the paperwork), I found out that my quoted interest rate has increased by .125%. Not life or death, by one more thing that makes me despise Chase. I had to sign right then and there, or else the seller would drop the deal, so I signed and completed my first deal on October 2, 2015.

LESSON: In situations where you don’t have agents working for you, it is your job to inform the other party of every little detail. Looking back, I should have checked in with the seller more often so he wouldn’t just assume I was a flake wasting his time, and then he might have been more understanding of my nightmare financing situation.

OVERALL LESSON 

Take time to establish your goals and study your real estate market. Be creative in finding your deal and take the right steps in working with all the parties involved. Always thank the people that helped you with the transaction, so that they are in a position to want to work with you in the future. Everyone I worked with got flowers delivered to them after the closing. While real estate is about smart numbers, it’s also about good relationships. But I want my next purchase to be a fourplex so I only have to go through the process once to acquire four units!