Financial freedom. Like many of the biggerpockets members, this is the concept that first attracted me to real estate investing. I started off by searching for the top real estate investment books a newbie investor should read. After scouring the internet and browsing various lists, I noticed that several of the books were from the bigger pockets publishing company. I asked myself: “what the heck is Bigger Pockets?” After some additional research, I got my answer and was immersed into the bigger Pockets world.
Approximately one year ago I began listening to the BP podcast. It was a borderline obsession. I would listen to multiple episodes per day. Every story I heard fascinated and inspired me. I wanted to dive right in. Each episode opened my eyes to a new investment strategy. My over-eagerness certainly led me to make a few mistakes. Here are a few:
Mistake #1: Shiny new toy
As I’m sure many BP members know, there are dozens, if not hundreds of great ways to invest in real estate. It seems like the only limit is your imagination. This, to me, was a blessing and a curse. I couldn’t decide what to invest in. Every single episode opened my eyes to a new form of investing and everything sounded amazing. Every strategy I heard or read about was a shiny new toy. And, like an adolescent child, when I saw that toy, I wanted to play with it. Luckily I did not actually dive into multiple strategies whole heartedly.
In retrospect, I wish I would have dug deeper into a particular investment strategy and really worked the ins and outs. Before accepting or rejecting a particular investment strategy. After months of bouncing back and forth between investment strategies, I finally decided on a particular strategy: Turnkey Properties.
Mistake# 2: Lack of Patience
After deciding to purchase a property, the next step was to select a market. In the span of a few short weeks I decided on Memphis, TN. I came across many articles that praised Memphis as one of the hottest rental markets. I spent another Month or two researching turnkey companies, speaking with property managers, asking for referalss on BP, etc. I even managed to convince my fiancé to fly out to Memphis with me to interview a turnkey company and view various properties.
I think the trip to Memphis contributed to my lack of patience. Since we took a trip to Memphis, I felt like I needed to make a purchase, otherwise it would have been a waste. After viewing several properties, we decided to make a purchase on the one that looked the best. We ended up purchasing a 3 bedroom 1 bath. It is a nice home in a great neighborhood. However, my goal was to have a tenant in the home that would stay long term. I did not consider the fact that a 3 bedroom 2 bath would be far more amenable to this. I think this could have easily been a point of negotiation had I bothered to analyze comparable homes.
As I look back at my negotiation approach, I can’t help but wince. I made no effort to negotiate price. I took the terms as proposed and thought this is pretty much how it is. The asking price is the price, I have to pay closing costs and whatever other associated fees come with the purchase.
Mistake# 3: Lack of Due diligence
My fiancé and I closed on this property in September 2019. The property did not have a tenant at the time, but the company has a 90 rental guarantee that promises to pay rent if they cannot place a tenant at the time. Therefore, we weren’t too concerned. However, it is now February and the property is still vacant. After many phone calls and email exchanges, The company did start to honor their commitment of paying the rent and continues to do so until the tenant is placed. The issue is, that I’ve had to authorize a rent reduction of $100 in an attempt to make the property more attractive to renters. Although the rental guarantee allows us to receive the expected rent, that is only good for the first year. Afterwards, I am only entitled to what the rent is at the time.
When I was first running the numbers, I obviously factored in the rent that the company advertised at the time. Even with overestimating expenses, the initial ROI looked pretty good. It was one of the reasons I chose the property. However, I did not conduct my own analysis for market rate rent in that area. Even after my dad warned me that I should check to see what rent in the area was. I could have use this as leverage in negotiating the price or have avoided this deal altogether. I'm confident that the unit will eventually be rented. It's just disappointing that it won't be at the amount I initially used in my calculation, and it won't be for another 2-3 years.
Conclusion:
This was a brief overview of the numerous mistakes that I made in my first real estate deal. I realize that many others have made the same mistakes or made far worse. Additionally, I fortunate that I am still very early into my real estate journey and I have a full-time W-2 job that I actually enjoy so I don’t have the added pressure of desperation to leave. I hope this posts helps other newbie investors avoid the same mistakes I did and I hope to learn from the mistakes of others.
