BiggerPockets

Hello everybody, My name is Jose and I am new to this site. I live in Houston, Texas and have decided to diversify my investments into real estate. A littlebit about myself. I am 32 yrs old, married and have two kids. I am architect who has over 7 years experience in the high end residential and commercial. I have parted from Architecture for the time being and with my current work, I have some time to look into real estate. I am fluent in spanish, both oral and written, which give me a good negotiating advantage with the subcontractors in my state. I have always been intererested in real estate and finally decided to jump in. I just received word that the bank accepted my offer for an older home. I am excited but nervouse at the same time. I have never closed on a home before and I wanted to ask what are the things that I need to look out for before I sign? I asked my real estate agent if we were going to have an final inspection before I sign and he said yes. I guess I am a little nervouse of something that may be wrong on the house that I don't already know. Is there anything else you guys recommend that I need to look out for?

Thank You!

Jose

Hello @Jose Garza - welcome to BP! Congrats on getting your first rental soon!

As for your question - I think it's normal to be a little nervous. Did you get a full inspection on the home? And what's the game plan with it? Flip, rent?

Definitely stay close to BP as you move forward. Anytime you run into somethign (and you will!) ask it one the forums. It not only helps you, but helps countless other future Googlers who have the same question

Congrats! I was super nervous my first time.

First of all, source and hire your own building inspector--don't have your agent recommend one. And be prepared to walk away from the deal. For your first deal, there is no way to avoid the emotion roller coaster ride you will be on, and your agent and loan officer know it better than you, and will use this to close you--regardless if whether this is a good investment or not.

In Adams County, Colorado, bentonite soils can cause massive foundation issues, and foundation issues are expensive/impossible to fix (especially on bad soil)

After that, I would look closely at electrical. Especially since it is an older home. No grounds, crappy breaker box, no gfci's, aluminum wire, cracked old wire are all possible problems. And likely it will have way too few circuits and outlets for modern usage. If you rehab it up to code, you likely will need new service, new breaker box and 2x to 3x the number of circuits. For example, I bough a house that had one circuit serving the entire kitchen (dishwasher, outlets, garbage disposal, fridge, microwave) when it really needed about 5 circuits.

Things like asbestos, mold and meth damage are 'walk away' items.

After that, items like furnace, water heater and plumbing fixtures.

Oh, hire $99 rooter to come and scope the sewer line as well. That could be a $10k fix if it needs replaced.

Another good exercise to 'practice' walking away from the deal emotionally. Play it out in your mind as you go through your day. If you can't stand the idea of walking away from this house because you are emotionally attached--this is a danger sign. Keep practicing until you can be less emotional about it.

Then, start quantifying your 'walk away' point.

How much are you budgeting for renovations / remodel? Add 33% to whatever number you come up with and that is what your real budget should be. How much over your renovation budget will trigger your walk-away decision?

In fact, you could use this as a trial-run:go through all the motions and then walk away over something in the inspection. Do this for the same reason there are pre-season games in football. Analyze your agent and more importantly, yourself, during this time to learn how you act and react.

@ Michael- The home was built in 1960 and is a block and beam. It definitely needs to be leveled. I am borrowing from a relative at 4% interest, so I will be paying as cash. I will call the realtor tomorrow find out what inspections we are doing. He mentioned over the phone today that we were going to go line by line to make sure there are no hidden costs on fixing it up.

Great reply @Erik Kubec!

If you ever get too nervous about the repair work or any of that, I have access to a lot of turnkeys in Houston where everything is already done for you and tenants are even placed.

I do know another guy out there who does a lot of rehabbing himself to hold his properties that I could connect you with as well. He recently moved to Houston from Mexico and is bilingual as well.

Jose, you should have 10 days from the time the contract was executed to back out of the deal based on how inspections go. I would have a contractor walk through it with you with the inspection report in hand to get a good repair estimate. Then add 20% to the estimate for surprises. If the numbers still work great, if not you can back out and should be able to get your earnest money back, depending on the contract (this is pretty standard on TX, check with your agent). Most of all, good luck! Sounds like you've got a pretty good deal. Hard to beat those finance terms!

Thanks to everyone for the comments and advise! The expertise from this site is incredible. I really hope I can be successful in this business, as I get more and more educated in it. I do plan on walking away if the numbers don't add up, but so far its look good. It's decent rentable property for the price Im getting it for. Its cheaper than some car notes!

I bought two more homes in Texas last year, and never saw either one of them. As a matter of fact, I have not seen 75% of my Real Estate portfolio. And just as other's have already said, "GET A HOME INSPECTION." It will be the BEST $250-$300 you spend on any investment. Since you are financing, you will get an appraisal. I paid cash, and I got an appraisal anyway. I also bought a house in Memphis, TN last year, same thing, Home Inspection and Appraisal.

A little extra advise, don't fall into the trap of a "hobby" Real Estate Investor. What is a "hobby" investor? It is one who drives by his/her rental more than once a month under the guise of "I am just keeping an eye on my investment." Don't become friends with the tenants. Don't drive your family and friends by telling them, "I own that property," you are not a Tour Guide.

And one of the best things to do, IF you are going to self manage, get to know a few of the homeowner neighbors. They have a vested interest in the quality of the neighborhood and let them know to call you if there is a problem with your tenant.

Congratulations on your first investment, may you get many more!