Lessons from My First Purchase
I just wrapped up a busy (and cold!) week in Owings Mills (outside of Baltimore), where I was rehabbing my first rental property. Being my first real estate purchase ever, it was exciting and intimidating to go through the underwriting (don’t get me started), closing, and rehabbing processes for the first time. I made a number of newbie mistakes, and thought that I’d share those with others who might be getting ready to make their first purchase.
Stand by your numbers. I made several offers on HUD REOs, always through the listing agent since I didn't have one lined up in the area (also a mistake). While I knew what numbers I needed to hit (70% of ARV after repairs were factored in), the annoyance that I encountered from the listing agents and rejections from HUD led me to soften my stance. On the property I purchased, I offered 70% of ARV without factoring in repairs, and immediately kicked myself when HUD accepted without even countering. Clearly, I left money on the table and also tied up excess capital in the property, since I likely won't be able to get all my cash out when I refi in 6 months.
Build your team first. My initial "team" was the listing agent who became my buyer's agent when I made my offer through her. I'd heard about HUD's "lax" standards for their listing agents, and I'm afraid that in my limited experience, they were absolutely true. My agent was purely interested in her commission, and just about the only time I was able to get her to advance my interests was when it looked like the lender wouldn't finance the deal. Likewise, once I hit the ground in Owings Mills to get the condo into rental condition, I was on my own.
Sweat equity isn’t free. Because I had compromised on my initial numbers, I tried to cut my losses by doing the rehab myself. This meant that for the first three days of my week in OM I was scrubbing walls, applying layer upon layer of primer, and basically working from the moment I got up until I crashed on the floor at night. I was NOT doing the things that would make my next investment more successful: networking, looking at properties, and building a team.
Focus on what you do best. It wasn’t until I realized that I wouldn’t be able to complete the rehab in time that I finally asked for help. And then amazing things started happening. Instead of spending the day with a roller in my hand, I was meeting other investors and rehabbers; I got referrals to great contractors; and I made connections that will enable me to do better deals and scale in the future.
Some lessons you can only learn yourself. I’ve listened to all the podcasts, followed the forums, and read a couple of dozen books. So, I knew what I was supposed to be doing but allowed doubts and other personal weaknesses lead me off course. For those like me, it might take three days of HARD labor and imminent failure to understand why the best practices are the best.
In short, this week completely kicked my ***. But I learned some very valuable lessons and ultimately managed to turn it into a success by reaching out to more experienced investors and contractors for help. Just as importantly, my initial numbers (though not ideal) left me room to make some costly mistakes without losing money on the deal.
For other potential investors who are still in the “book learning” stage, I’d suggest that you probably already know what a good deal is. Find one, stick to your numbers, do it, and take your learning to the next level. ;-)
Happy investing!