This is a long post. But its a newbies play by play for finding new deals.
Let me first start of by saying that I am a proud newbie real estate investor. You were once where I am now. And I aspire to be where anyone reading this is with more than 2 rental properties. I knew I had an itch for real estate but 3 years ago wasn’t even sure if Id ever pull the trigger. Analysis Paralysis and fear of failure pretty much had a stranglehold on me. But BiggerPockets (especially the podcast) was a huge help for me to just jump in. I knew if I didn’t do it 2 years ago, I never would and I’d beat myself up for it. Here I am 2 years later GETTING PAID to move into my second property. A couple quick disclaimers and then I’ll dive in.
- I am a buy and hold investor. I am in this for the long haul.
- I use specific financing that allows me to get into properties for nothing.
May 2016 was when I got my 1st preapproval for a home loan. I always loved real estate and looking at homes but I was sick of just looking at homes on zillow and watching tv shows about real estate. I was itching to jump in. Being on BiggerPockets and listening to the podcast did not completely fulfill the interest in real estate. I met a realtor through my church and told him I was interested in buying a small multifamily. He set me up with the MLS search and a couple peaked my interest, made an offer one on and missed and thought it was the one that got away. Like wanting to ask out a beautiful girl you have a crush on in high school. I was really bummed. LESSON #1 Fellow Newbies: If you are investing, don't get emotional about a property. The house doesn't get emotional for you. After a short mourning of missing what I thought was "The One" my realtor told me about another property. We went to look at it, I saw some potential. It was a 1 story duplex. Both sides were rented and it was in a pretty good location. It was a little more than the other one but I decided to go for it. Listed for $144,900, I offered $138,500 because I was going to get a "good deal" or at least so I thought. The seller came back with $140k. I was feeling pretty good. However, being a military veteran, I qualified for a VA loan, which allows me to put nothing down to move into a home. However, not having done enough research about VA loans, I thought I wouldnt have to pay closing costs. WRONG! LESSON #2 Fellow Newbies: Do your homework. About your loan, the mortgage process, closing etc. Don't skip out on it. As I later found out, the seller pays realtor fees and the buyer pays closing costs. I didn't have the $4-5K to close on the property, so naturally I went back to the seller and offered $145k if he pays closing costs. We haggled a little more and settled on $146,500 and he would pay closing costs. So my going from having a "good deal" to paying above asking price swung around real quick. LESSON #3 Fellow Newbies: Just because there is a way to invest with no money down doesn't mean you don't need any cash in the bank. But I was so ancy to get in a property I said screw it, let's just get it done. There were some repairs that needed to be done and the seller and realtors paid to have them complete so the deal could get done. July 14 2016, I signed a bunch of papers and I was officially a homeowner with a tenant paying the principal and interest on my mortgage and I had my roommate paying me rent so that I needed to only pay $44/month to fulfill P&I, repairs, capex, and vacancy. Not too shabby for a house hack. When I closed, I received just over $1k for the security deposit and prorated rate for July. My closing attorney said don't spend the security deposit but the rest is yours. A whopping $350 was mine for closing on a house. A good idea would have to save it/put the extra into upgrades to the house. But I'm a newbie. I went out and took a couple friends out for a celebratory dinner and drinks. LESSON #4 Fellow Newbies: Treat real estate investing like a business and you could become rich. Treat it like a hobby and you will go broke. I collected August's rent and I put the whole thing into upgrades in the unit I moved into. Much smarter. I bought a dishwasher and installed it in my unit because washing dishes by hand SUCKS. My roommate moved in in August and over the next couple months I was figuring out how to be a landlord. LESSON #5 Fellow Newbies: Become a landlord even if just for a short while, it will teach you what you need to about landlording.
After about 6 months, i was getting ancy, I wasn't ready to work in my business but I was ready to work on my business. So I had my realtor set me up with email alerts again and I was going to find my next small multifamily property by December 2016. That was my goal. But I was striking out. If something came on the market, there was an offer above asking price for almost any small multi family. There would maybe be 1 multifamily a month come on the market. I was getting bummed like maybe I should start looking at SFR and then move out in a year and rent that. But I decided I was going to get try something I had no clue how to do. I've heard about it on the BP podcast but I'm not really sure where to start. I was going to mail out some letters to owners. Maybe then I'll find a deal.
I started building a list of properties in areas I would want to buy. I added them to an excel doc, got the owners address of the county tax records and mailed out 45 handwritten letters on my first mailing, 65 handwritten letters on my second mailing and nearly 100 handwritten letters on my 3rd mailing. All about 2-3 months apart. I averaged a 9% response rate (most of those being “F%$k off and stop mailing me” LESSON #6 Fellow Newbies: Don’t take it personal, some owners just don’t want to talk to you. It’s good to be excited and eager but don’t take it personally. There were a couple interested parties that actually wanted to sell but they all wanted way too much. As time wore on, I was more and more convinced I was too late to the multi family party in my market. Fast forward to Feb 2018, still no deal. Tried working with another realtor to maybe score another deal. One popped up on the market, put in an offer and it didn't get accepted. I put the offer in the day it came on the Market. I was about $3k low. I was getting so frustrated.
The next day, I got a text from someone I mailed a letter to and spoke to nearly a year before. He wanted to sell his quadplex. When we spoke nearly a year before, he wanted $250k for his quad (i know, some markets would kill for that but it was way overpriced). I told him I could offer $205k. A year ago, he said he had a $225k cash offer. I said I would take that other deal if I were him and thanked him for his time and too keep me in mind if he has any other properties he wants to sell.
This seller was ready to sell now and wanted to roll the proceeds as a 1031 exchange to a property in his hometown of Virginia Beach (where he was currently living). He said make an offer. I asked for some of his financials and told him again I could offer $205k for it. The next day he texted me and said "When can you close" I swear I could have fallen out of my chair. NO COUNTER? NO "YOUR CRAZY"? Did I offer too much? My head was spinning. LESSON #7 Fellow Newbies: Play poker because in this business you need to have a poker face. I clarified and told him its $205 and he pays closing costs, trying to get as much out of this deal as I could. He said he had an offer at 200k cash with no closing costs. I've seen his bluff before. So I offered him $207,500 and he pays $7500 in closing costs. 3 days later he texts me back and says yes he'll do the deal. I'm on a trip to Charleston SC eating breakfast with my family and I about lose it over the fact that I have an agreement on an off market deal on a quad plex via text message. As soon as I got back home I called a bunch of banks to try to see how on God's green earth I could use my VA loan again to move into that property, so I could move into this property with nothing down.
He didn't want to use realtors. About 6 months earlier, I sat down with a lawyer to form an LLC, pay for a sales contract and a lease agreement. So I had a contract I never used before and I typed up the deal and emailed it to him. A few days later, he signed it and got it back to me. All the while I found a bank that would qualify me for the loan. The VA loan allows for what is called "bonus entitlement" where essentially you can have more than 1 VA loan at a time. There are limitations and BP has some amazing resources on how best to use a VA loan. So I knew I could get qualified and could pay (Kind of important) for the quadplex. LESSON #8 Fellow newbies, know how you are going to get your financing before you need it.
Not using a realtor is not for the faint of heart. It is literally herding sheep. Banker needs this, lawyer says amendment to the contract needs to be made, seller needs to sign it. Seller needs to pay for septic inspection, I need to schedule the home inspection. This process has given me a new appreciation for realtors. I’m guilty, I though they don’t do anything and take 3%. Im wrong.
Home inspection was pretty solid but a heat pump wasn’t working. Got the report back and that was really the only thing that needed to be fixed. I let the seller know that it would have to be fixed expecting maybe we would have to split the cost. He let me know it was already on order and was going to be installed the following week. I was like TOTAL SCORE! For me this was a huge hurdle that made me think we are actually going to close on this deal.
VA Loans require appraisals, once the new heat pump was installed, the appraiser came out and looked at the property and had 3 repairs the seller needed to make before we could close. The railing on the steps was loose and needed to be secure, the draining sprouts were draining right by the foundation of the house and needed to be replaced and the paint on the windows was peeling and bare wood was exposed. Once they were complete, the appraiser would verify everything was correct, and sign off so we could close. This is where the seller started dragging their feet. I get it they don't live in my market, but these repairs took nearly 2 weeks. Seller had to pay for all of them as well. These were repairs I was planning on making however my appraisal required them to be complete before we close. After dealing with the seller and hounding him to get this done and touching base with his property manager to expedite these repairs, they were finally done by April 20th or so. Appraised for $214k (low in my opinion but I'll take it)In the meantime, the seller had to pay for a septic and termite inspection as well.
Not ever having bought a property that the seller wanted to use a 1031 exchange, there are very fine rules about a properties title in the transfer of a 1031 exchange. The property must be in the sellers full name, not a business name. LESSON #9 FELLOW NEWBIES: Don’t just know of facets of things like 1031’s, learn as much as you can about them so you can catch things on the up front rather than the backend. The contract I signed was between me and the seller however, the title of the property was under his businesses name. It took almost a week for him to work with his lawyer/closing attorney to get it mailed to my closing attorney so that they could record the new title in my county so that the 1031 would be able to take place. All the mean while my rate lock was expiring after a 2 week extension from my lender on April 30. Had to close by then.
April 26th we got the deed recording and scheduled closing the following Monday April 30. Little hiccups with some last bit of amount of rent due and security deposits but I got to the closing table and bought that house and got paid $1975 at closing. Most of it was the security deposits for the tenants but I did receive 1 days worth of prorated rent. A whopping $72. But this was a deal I found off the market, closed without a realtor, found a bank that would give me financing all while working a full time job. Not easy and not for the faint of heart. LESSON #10 FELLOW NEWBIES: Hustle pays dividends. Work hard. Make calls on your lunch break, wake up early to tackle tasks you need complete. Work work work. If you are passionate about real estate, or maybe just about financial freedom, hard work is enjoyable because you love it.
Keep grinding. It took over a year to get my second deal done but it's possible. Now I have 6 units cash flowing about $115-$140 per door. I don't say this to brag, trust me it's not that impressive to most on BP. But it shows that if you hustle, good things are going to happen.
