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Real Estate My first venture in real estate investing

Discussion in 'Real Estate Investing' started by J P D, Nov 14, 2007.

  1. J P D
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    J P D New Contributor

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    My first venture in real estate investing -update 12/26

    Hi everyone,

    I am currently negotiating the purchase of a 2 unit residential rental property and thought I would document my experience in real estate investing from the beginning so everyone could follow along. If anyone has any advice to offer along the way, please feel free. I joined here to take advantage of your guy's experience.

    If you missed my introduction thread... I think it might be worth a look to see where I'm coming from and then watch me get where I want to be -
    http://www.thefastlanetomillions.com/showthread.php?p=14930#post14930

    So back to real estate. I don't think I need to go into my reasoning behind wanting to get involved in this realm of investing. I think the benefits are well known and the return possibilities proven. It makes more sense than not to invest in real estate.

    I've spent the past few years educating myself on the subject as well as making sure to prepare so that every aspect of my life was in place to pursue this when the time was right. I needed to have my credit in line, save up an emergency fund, get a decent enough job that I would have no problem with a dp or covering the mtg in case of a vacancy. I followed through on all those preparations and now I am finally ready to move forward.
    First thing I did was to find a good market. I wanted someplace nearby my family and job, but outside the city and cook co. Someplace that was easily accessible to and from other hot areas around the chicagoland. And most importantly, someplace that I would want to live. I started out with a list of about ten possible locations, then that list became five, then two, and then one. I had figured out where I wanted to start looking for property. This city has great population and industry growth, low crime, low property taxes, lake michigan water, and a recent hwy construction running near by. Now it was time to start researching this area further. I started reading up on the city and co. government, history and future of the city, all kinds of trends and statistics. Everything was looking good so I picked out a nice section of the city to focus on. This area is a desirable downtown/historic neighborhood close to cathedrals, college campuses, a casino, nightlife, lots of jobs both white and blue collar, and solid property appreciation. I drove to this city during the daytime to walk around, night time to walk around, weekdays and weekends, just to get a real feel for what life is like in this area.
    Now that I had done my due diligence in finding a location, I contacted a RE agent that is also involved in RE investing and knowledgeable in this market and we started looking at properties of my choosing. I must have looked at about 25 properties, of which only 2 caught my attention as having potential. I put in an offer on the first property but I wasn't aggressive enough and someone else jumped on it. Actually I couldn't have got it for what it was worth numbers wise so I don't feel like I missed out. The property needs to work out numbers wise because I don't want to get myself into a pickle financially.
    My basic requirements of my first rental property are as follows:

    1. it has to be turn key, fully furnished and livable. I want this first step to be an easy and enjoyable one that will encourage me to further invest in RE. I don't want to spend my time and money to bring a place up to decent living conditions right off the bat. I can do without the unnecessary frustrations until I get my feet wet a little.
    2. since most two units in the area are converted sfr, it has to have private entrances to both units and a separate entrance to the basement/laundry/storage accessible by both units.
    3. has a driveway and garage(possibility for extra monthly income)
    4. rents at 100% occupancy have to cover the whole mtg. this is tough but I found one with a little searching.
    5. since all of the homes in this area are about a hundred years old, I want something that has been recently rehabbed/updated with a modern appeal, I want central air, new bath and kitchen, new siding/windows/etc... all things that will make my property stand out from the rest when shown and command rents at the top of the market.

    I know I was asking a lot, but I found a property that fits all my criteria perfectly. the first floor unit is a 2bed 1bath, hrd wood floors throughout, two entrances, very spacious and bright, very clean and modern, currently on a 6mo lease by a very nice, clean couple. the second floor unit is a 1bed 1bath that also has an updated bath/kitchen with hardwood flooring, painted walls, etc.. perfect place for me to live. If I get the property for what I think I'm going to at 0% down, the rent from the 1st floor will cover about 65% of my monthly mtg payments. So I will be moving into my first property, building equity, and paying about half of what I would if I were renting a place from somebody else. When I move out and get another property, this one will cash flow about $150 a month while fully rented(if rents remain where they are now) Starting to make good sence!! This leaves me able to continue to save about 80%(before food and stuff) of my monthly income.

    Right now I'm waiting to hear back on my second counter offer. I hope to know something by the end of the day. I will post back here often as I continue on. This was the easy part, now the hard stuff comes into play...managing the property, tenants, and legal aspects which are all things that I have lots of questions on. I must say though that the process has been pretty painless up to this point, even kind of fun. I'm sure as I get further into this it will all figure itself out.

    take care,
    j p d
     
  2. Yankees338
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    Yankees338 Bronze Contributor

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    Congrats on taking action and sticking to your plan. Your progress has been extremely impressive to this point.

    Just out of curiosity, why did you opt to go with a duplex as opposed to a quadruplex or something larger?
     
  3. J P D
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    J P D New Contributor

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    I plan on getting into commercial property (5+ units) eventually. Its very unlikely that a bank will lend to someone with neither sufficient collateral or a 20% down payment on any kind of commercial property, especially with the lending community in its current situation. Plus commercial is a whole other ball game legally and such.
    I have heard a lot of stories about people who jump in over their head too quick, finance a 4 unit where being able to cover the mtg is dependant on at least a 75% occupancy plus some out of pocket from the owner. Something happens and they are at 50% for a few months and they have to dip into their emergency fund(if they even have one). They finally get the place back to 75% and a furnace goes out or something and they are stuck, fall behind on the mtg and it just escalates from there.
    I am in no hurry and have the rest of my life to avoid preventable bad situation. A 2 unit will be ideal for me to get my feet wet. It will let me get used to handling land lording duties with one tenant instead of trying to juggle 3 or 4. Also if the rented unit is vacant I can cover the whole mtg by myself with no problem. My opinoin is that its always better to start small and work your way up instead of starting out too big and falling on your a$$ so hard you never want to get back up again.
     
  4. Satpoint
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    Satpoint PARKED

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    What lender are you using for getting zero down?

    Good luck on getting the deal- keep us posted.
     
  5. J P D
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    J P D New Contributor

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    I'm working with a small local lender. Great service and very knowledgeable of their industry.

    btw, I got another counter offer back. We are almost there, about a couple grand to go in both directions.
     
  6. Yankees338
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    Yankees338 Bronze Contributor

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    I definitely understand and respect that. Personally, I'm hoping to start off with a 3 or 4 unit property to better utilize economies of scale. It may entail a little more risk, but it's more likely to cashflow and in the tough market I'm in, that's crucial.

    I'm sure your plan will work out just fine. In the end, I guess it doesn't really matter if you plan on building up.

    Congrats! Again, keep us posted! Everybody here loves hereing about progress! :)
     
  7. J P D
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    J P D New Contributor

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    Progress update:

    I just got word that the seller has accepted my final offer!!

    The seller got back to me on Thursday with a counter offer and said that was as low as he was willing to go. Before I even put in my first offer, I worked all the numbers and came up with a price I would pay for this property and not a dollar more. His final counter offer was still about 7k higher than what I was willing to pay, so I countered with my final offer and told them I was going to look at some other properties. I got a call from my agent this morning with the good news that my offer has been accepted.

    Almost time to put another check on my list.

    wish me luck,
    jpd
     
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  8. phlgirl
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    phlgirl Bronze Contributor Read Millionaire Fastlane

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    Congratulations!! The place sounds really nice and I think it is a perfect start for you. Gotta love having someone else paying for part of your mortgage!

    Just a few thoughts, as you proceed with your transaction. You likely have considered/read about some of these already but just incase:
    • Confirm a rate and review closing costs with your lender (just so you know, up front, what is coming at settlement)
    • Obtain a solild lease agreement for your state. Although you will be honoring the existing rental agreement for the downstairs unit, you will want to be prepared with something when renewal time comes
    • Prepare a list of contractors, whom you can call on, if and when maitenance calls occur. Ask friends/family/co-workers for reputable, reasonably priced contractors who are willing to work in your new neighborhood. I would recommend the following, at a minimum:
      • Plumbing
      • Electrical
      • Roofing
      • HVAC
      • Pest Control (particularly if you are in the city)
    • Structure some type of recording system. It could be anything from a large whiteboard to a full blown sotware application but you will want a place to record all expenes and income from your property. Make an entry for rental income each time it comes in and also enter any costs (mortgage payments, repair costs, office supplies, etc.)
    The 2 biggest hassles I encountered when I bought my first duplex were knowing who to call when a maitenance problem came up and tax time. Prepare a contractor list beforehand so that when you are out to dinner and get that call, it will not be such a big deal. You are quickly able to handle by just making a second phone call (as opposed to scrambling for who to call to fix the gushing sink). As for the taxes, if you record each income and expense as they come - just make it a habit - it is so much easier than trying to remember/research at year end. Your chances of forgetting important expenses (which could decrease the tax you have to pay) are severely increased if you are not writing them down in one, central, location.

    The best of luck to you!! You should be very proud! Starting out at your age will have such an impact. Awesome!
     
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  9. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    Allow me to say that I am very impressed by your progress. Congratulation on this, and lets hope for a smooth closing. rep++

    phlgirl, great advice, rep++
     
    Last edited: Nov 17, 2007
  10. J P D
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    J P D New Contributor

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    Thanks guys,

    phlgirl, thanks for the tips.
     
  11. Yankees338
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    Yankees338 Bronze Contributor

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    Congrats big time!!! I'm sure this is an exciting time for you. Good luck with closing!
     
  12. Satpoint
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    Satpoint PARKED

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    Congrats bro, big step!

    Are you still getting 0% percent down?? You must have a fairly good credit score- these days it seems rare to be able to get 0 down.
     
  13. randallg99
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    randallg99 Bronze Contributor

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    you should be corrected here: you were not asking a lot. You were following your well thought out and detailed plan.

    Good luck, but you won't need it.
     
    Last edited by a moderator: Nov 18, 2007
  14. J P D
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    J P D New Contributor

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    satpoint, I am still getting 100% financing which is really going to boost my roi. And my credit is about as close to perfect as you can get. I know when I first told the lender I wanted 0 down they were laughing at me, that is, until they checked my credit and job history and monthly income. Just confirms my belief that if you prepare for your goals early on, you will have less obstacles in your way to achieve them.
     
  15. J P D
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    J P D New Contributor

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    I just got back from having the home inspected.

    Luckily we didn't find any deal breakers. Just a few minor things like a leaky sink drain and some bad electrical outlets. The water heater is about 10 years old and is kind of small to be supplying a two unit so I will most likely have to upgrade that. The roof is going to need attention within the next 5 years(which I already knew and took into consideration in my decided purchase price). All in all though, the property looks like a solid investment.

    I am going talk with my lawyer and try to write into the contract that the seller has to get the electrical problems taken care of due to safety. The inspector said it should only be a couple hundred dollars so I don't think the seller will object to that over loosing the deal.

    The past couple days have been kind of crazy, making all sorts of phone calls and setting up appointments with different people, copies of this, faxing that, etc... Probably just because its all new to me though. I'm sure next time around I'll feel like a pro. The whole process does seem kind of overwhelming, but I'm finding that once you put down the property investment book and get into it, its not as bad as it seems. at least not yet....

    take care guys
     
  16. Bilgefisher
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    Bilgefisher Bronze Contributor Read Millionaire Fastlane

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    Having gone through this stuff for my first deal a couple weeks ago, I understand. Personally I love that overwhelming feeling. I really get a sense of accomplishment when I bite off more then I can chew and then chew it. Please continue to keep us updated.
     
  17. J P D
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    J P D New Contributor

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    UPDATE:

    Hey guys, I haven't posted in a few weeks as things have been pretty crazy. I closed on the property on the 14th of this month. Everything went smooth, a lot smoother than I had anticipated it would. I stopped by the property a few days later to sit down with my tenants and go over some things and that went well too. I had been expecting some problems because I had to tell the 2nd floor tenant that I will not be renewing their month to month as I will be moving into that unit on Jan 15th. I could tell they were kinda bummed and they said they really liked the place but understood. The family on the first floor seems like they will be pleasant neighbors.
    The property is in overall good shape, but I did a thorough walk around with the first floor tenant and came up with a few minor things that need attention. Nothing that can't be taken care of in a weekend though.
    I would say that my first experience in real estate has been a good one so far. I feel like I found a great starter property that will get me off in the right direction. Also this will be the first time I will be out of my parents house and on my own so I'm kinda looking forward to that. I plan to live in this property for a year to satisfy my owner occupied loan, then I plan to get a 3-4 unit rental property. The following year after that I hope to go in on some commercial property with some investors. I just signed up for the local landlord association group for the town my property is located in, and I'm really looking forward to networking with some other property owners and learning even more.
    If anyone is reading this that has never bought any property before and is reading up on RE investing in rentals, I would say just go for it, its a lot less of a head ache than it seems, as long as you do all your homework and preparation ahead of time.

    On a side note, I had made another post about starting a web based business. I realized that I was out of my element and I was starting to focus too much attention towards it. I feel that my idea was good, but it just wasn't for me to pursue. I am instead going to start my own trucking company. I am going to start off with one truck and get a contract hauling mail for the post office. I am already doing this for another company, but with all the problems I have with them and the way they handle business I have decided I would be happier being my own boss and conducting business the way I see fit. I am already on the phone about this and talking with the post office people, I should be good to go in a few months.

    I can see the on ramp to the fastlane approaching!!!

    take care guys,
    john


    Sretan Bozic i Nova Godina!!
     
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  18. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    Man, you don't cease to amaze me!!!
    It is an amazing accomplishment.
    I also congratulate you for focusing on what you do know (trucking business) and making sure that the money you produce (earned money) is being transformed into passive income in cash flowing assets. That is the best way, in my opinion, to create wealth.

    I did notice that your plan has been somewhat defined for the next two years... but what about the third one? and the fourth and so on? I think it is important to have a plan defined for at least three years, so you can keep focusing on the next step of your plan once you accomplish the milestones.

    congratulation again, and Rep++
     
  19. Yankees338
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    Yankees338 Bronze Contributor

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    Great to get updated on your progress...congrats! Keep us posted!

    Now that it is passed you, would you mind sharing what your idea was?

    Speed+++
     
  20. Runum
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    Runum Platinum Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    Great update and congrats.:hurray:
     

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