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Bought My First Rental Property...

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Jose Garza

Architect from Houston, Texas

Feb 17 '13, 07:10 PM


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



Ben Leybovich Video

Real Estate Investor from Lima, Ohio

Feb 17 '13, 07:23 PM


Welcome to BP Jose. Congratulations and good Luck with your first investment! Stay active here. You will find answers to practically anything you need on BP.



Medium_logo_03Ben Leybovich, JustAskBenWhy.com
E-Mail: [email protected]
Telephone: 1.888.508.9643
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Ben Leybovich, Syndicator / Creator of Cash Flow Freedom University http://www.JustAskBenWhy.com


Brandon Turner Verified Video

Real Estate Investor from Montesano, Washington

Feb 17 '13, 08:05 PM


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



Medium_bp-squareBrandon Turner, BiggerPockets
E-Mail: [email protected]
Website: http://www.BiggerPockets.com
REInvestor & VP of Growth @ BiggerPockets.com | Follow me on Twitter! @BrandonAtBP


Michael Galloway

Real Estate Investor from Brentwood, California

Feb 17 '13, 08:11 PM


Jose, welcome. How old is the home? Are you financing the purchase in the accepted offer? Do you know what inspections you will have? Did you put earnest money into escrow?



Erik Kubec

from Denver, Colorado

Feb 17 '13, 08:23 PM
2 votes


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.



Jose Garza

Architect from Houston, Texas

Feb 17 '13, 08:25 PM
1 vote


Hello Brandon, thanks for the response. The real estate agent told me we were going to have a full inspection before we close to make sure there are no hidden costs. I know it needs work but I got it cheap enough where I can invest 10-12k. I offered 29K and its appraised at 54k. Its 1360 sq. ft. and the rental properties are going for $850/month. The major issued are: It needs leveling (block and beam) It looks like it pretty easy to level, and the beams underneath look pretty good, no termite damage. It need a A/C-Heating system, as the old tenants removed the central ac. Then, Carpet, retexture walls, paint and repaint cabinets. I want to keep it long term and rent it, so I want to make the necessary expenses to make it rentable. The architect in me wants to make it look good but I need to think of it as a rental property. I hope It goes well...



Jose Garza

Architect from Houston, Texas

Feb 17 '13, 08:37 PM


@ 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.



Brandon Turner Verified Video

Real Estate Investor from Montesano, Washington

Feb 17 '13, 10:26 PM
1 vote


Hey @Jose Garza looks like a great deal. I have a few houses that need leveling. Doesn't usually appear that tough - but I know contractors vary quite a bit so get several bids if you are hiring it out.

and 4% money! That's awesome! Keep in touch on this project!



Medium_bp-squareBrandon Turner, BiggerPockets
E-Mail: [email protected]
Website: http://www.BiggerPockets.com
REInvestor & VP of Growth @ BiggerPockets.com | Follow me on Twitter! @BrandonAtBP


Ali Boone

Real Estate Investor from Venice Beach, California

Feb 18 '13, 12:10 AM
1 vote


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.



Medium_hipsterinvestment_logo_black300dpiAli Boone, Hipster Investments
E-Mail: [email protected]
Website: http://www.hipsterinvestments.com
Real Estate Investor, Pilot, Wannabe Go-Go Dancer.


Eric Thomson

SFR Investor from Conroe, Texas

Feb 18 '13, 04:19 AM
1 vote


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!



Paul Crowson

Rehabber from Conroe, Texas

Feb 18 '13, 05:15 AM


Hey there Jose, nice to meet you here on BP, and nice to see another Houstonian here too. I would so wholeheartedly agree with Eric Kubec about practice walking away, even it you leave a little money behind having some people or service on the property for your due diligence. Better a few hundred or thousand and lessons learned that will never be forgotten nor repeated, than to have something that is a nightmare that won't ever be forgotten either, plus meeting other like minded folks that would appreciate knowing you are serious about "the numbers have to work" .......reading about your background is what prompts me to say practice walking away from the deal. The contractor I work with here in Houston has plenty of horror stories of perfectionist engineers and architects wanting to do the deals to perfection, which kills the numbers, and the neighborhood didn't appreciate the high end upgrades, only the investor did. I have 2 solid deals with him now after walking away from about 40 others that would have sunk me before I even started. Hope this helps! ttyl



Jose Garza

Architect from Houston, Texas

Feb 18 '13, 05:39 AM


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!



Lyall Storandt Verified

Residential Real Estate Agent from Houston, Texas

Feb 18 '13, 09:05 AM


@Jose Garza Hey Jose, welcome to BP! Great to see another Houstonian on the site!

I'll shoot you a PM re: your first property. I'd like to run some numbers for you to make sure you're actually getting a good deal on the property. Also, I'm sure I can help with contractor referrals to get it ready for lease if you move forward with the purchase.



Medium_nwgold01Lyall Storandt, New Western Acquisitions
E-Mail: [email protected]
Telephone: 405-361-1341
Website: http://www.newwestern.com/agent/LyallStorandt/
YouTube: http://youtu.be/7r-BC8o2fw0


Mike McKinzie

Accountant from Garden Grove, California

Feb 18 '13, 09:14 AM
1 vote


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!



Jose Garza

Architect from Houston, Texas

Feb 21 '13, 03:53 PM


Once again thank you all for your advise! Just as an update on my first purchase, I signed the agreement yesterday and I will give the deposit tomorrow. I plan on hiring an inspector to do a thorough inspection. A couple of things that I have to do are hire an electrician to pull a permit and connect the power because the meter was removed. Also, the gas meter was removed/ diconnected in 2007 for some reason and I have to hire a plumber to pull a permit aswell to connect. I am not allowed to connect the water but can do a pressure test. After I connect both, then I will hire an inspector. This home was a foreclosure so I guess that's why it has all these issues. I hope my cost to do this is but too expensive!



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