My partner and I decided to pick this house because it was more of a turnkey property. We didn't want our first property to give us too much problems. We ended up painting the interior walls of the upstairs bedroom, kitchen, and the hallway of the basement. Trimmed the tree that was hanging over the roof. Replaced the old appliances with a used stove and fridge. Added blinds, air fresheners, and drain plug.
What made you interested in investing in this type of deal?
This SFH deal looked appealing because of the condition of the house. Let's start off with our offers and work up to the house we actually closed on. Our first offer was made on 7/5/19, which had a previous lease that we were going to take over. As newbies, we saw it as a smooth transition into rentals. Luckily, it fell through, because the house ended up being infested with fleas. It was just a bump in the road, but that wasn't going to stop us on looking for more. As my agent continued sending me listings, we decided to put another offer on 7/9/19, which ended up not working out either. A month later, my agent sends me this house that was repainted on the outside. It made the house have great curb appeal, which also made me interested. When our agent walked the area, he stated that it was the nicest house on the block. The house was very close to turnkey. As an investor just starting out, I believed minimizing risk was ideal. If our first deal doesn't go as well as planned, we would want to keep the expenses as reasonable as possible. Although some things are out of our control, the house and its condition is totally up to us. We decided to put an offer on 8/2/19 and ended up closing on 8/14/19.
How did you find this deal and how did you negotiate it?
How we found this was very special. The day I knew I wanted to start real estate investing, I decided to call the number that was hanging on a sign that said “WE BUY HOUSES”. On 2/2/19, I went to their meeting and quickly realized that they were trying to sell me something. It wasn’t for me. I knew I wanted to start, but I needed to find another place to seek information. I went online and searched local meet ups. I invited my business partner to an out-of-state multi-family investor meet up. He saw the meet up was a good start to network through real estate investing. Our first meet up on 4/24/19 was located an hour away but didn't stop us from going. It was a great experience, because it led us to our next meeting, which was located closer to my area. The meeting had different people, but that was a good thing. On the third meetup, there was a guest speaker who was a real estate investor/real estate agent, residing in Indianapolis, named @Zach Hoereth. Little did I know I was going to meet this person that same night. After the meetup was over, I walked around and talked to people. I came across a guy named @Frank Lin that heard that I was in the medical field during the introductions at the beginning of the meeting and asked where I worked. He said he also worked for a hospital. We chatted more and realized that he worked at the same hospital with my girlfriend. Crazy thing is that they actually know each other. Not sure if it was meant to be, but it sure gave a sense of relief because of association. I decided to ask Frank about his investments. He told me he actually invests with Zach, who was the speaker of the meeting. From there, I got Zach’s contact and he’s been my agent ever since.
I negotiated my first deal by giving an offer based on pictures and information provided by my agent. My agent stated the major things I needed to be aware of were the water heater and the HVAC unit. After gathering estimates, I calculated the repairs and subtracted it from the listed price of the property, accounted for other expenses, and came up with an offer.
How did you finance this deal?
The deal was funded by cash.
How did you add value to the deal?
We added value to this deal by taking a trip to Indianapolis. This was another crazy story as well. During my time searching for our first rental, I was also looking for potential contractors. I knew that we would need to repair things whether it would be big or small. I was in search for one and couldn’t find one that was available within such short notice. I needed one because we closed and things were moving faster than expected. I was going to find a contractor and handle this remotely over phone calls. I believe the date I was offered was two months out. I saw this as a big obstacle and needed to overcome it. My partner and I decided that we needed to take a trip in order to give our house some TLC. We needed to paint the kitchen because it was painted a LIME GREEN color. The upstairs room needed the PURPLE wall color to be repainted as well. We got our airfare and we were determined in getting our house rent ready as soon as possible. We were scheduled 8/30/19 to fly to Indianapolis. I wasn’t sweating it, because I thought that painting walls were no big deal. Two days before our trip, my aunt was chatting up with her retired friends during lunch about how her nephew was into real estate investing and told them I invested in Indianapolis. It is truly a small world because one of her friends actually has a brother that lives in Indianapolis. That brother has a handy man that has a lot of experience with houses. It was perfect timing because we weren’t prepared to do anything beyond painting walls. I contacted the handyman, and conveniently he was off on the weekends. He was able to meet us at our property and get started that same day. Talk about fast turn around and service. I looked at my partner and told him that we didn’t choose Indianapolis, Indianapolis chose us.
What was the outcome?
The house wasn’t able to be finished within the three days we were there. We were taking multiple trips back and forth from Lowe’s to the house, because our handyman needed certain tools and supplies in order to fix the things during the time we where there. The manual labor mostly consisted of replacing appliances and items around the house ranging from large to small. Examples of large items were the refrigerator & stove. The smaller items included getting the correct piping needed for the older water heater the house came with and replacing a leaking sink. Trimming an over-hanging branch was another thing that needed to be done. Being naive, I thought tree trimming was no big deal. I clearly thought wrong and discovered it was a mandatory cost expense if the tree is violating code. A month after closing, all the repairs that needed to be done were finished, and my property manger put it on the market to be rented.
Lessons learned? Challenges?
What I learned at the end of the trip when this project was finished was that we did not need to fly from CA to IN. In fact, we could have just left everything to be done by our property manager. For everyone out there that wants to do the least amount of work, I say let your property manager handle everything. However, the drawback to this is a markup on all the fees, unless you were to find a reliable contractor yourself or you did some of the work on your own. The probable cost of all of this work, if taken care of by our Property Management team, would have estimated to about $2500. The average amount we spent by having our own private contractor and doing some of the work on our own was roughly around $1500. Which means we saved an average of $1000. This is the first property I invested out of state and luckily, I did it with a business partner/friend. I say luckily because getting the house together required some manual labor, lack of sleep, and quite a bit of phone calls the 3 days we were there. Maybe some people love doing this kind of work, but my business partner and I for sure did not.
There was a lot of work we needed to do which seemed insurmountable for the 3 days we were there, and the fact we didn't know how to or even what would be up to code (ex. Trimming a large tree, painting the interior walls of the house, installing the stove, moving the stove and fridge to the kitchen, exchanging old piping to new piping) was going to be an expensive job if we sent our Property Management team to take care of it. Luckily for us, the stars aligned and we had found a contractor that lived nearby our investment property just days before. So, one of the most important things I can leave you with is to do your best to find ways to be more cost efficient to increase your ROI. The ways we did were to do some of the work on our own and to find a quality contractor you can trust. I know that might be easier said than done to find someone trustworthy, but they are out there. You just have to do the work and look. Your contractor will be one of your best friends and a significant team member on this journey.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
I worked with @Zach Hoereth, Real Estate Investor/ Elite Indy Realty Group
If you are looking for property in Indianapolis, you have to connect with Zach. He comes from an investor background and understands his markets. He answered any questions I had and was quick with responses. I highly recommend him and am looking forward to working with him again.
