How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
The Pareto Principle
If you’ve read no fewer than five business books, you’ve probably heard of the Pareto Principle. Named after economist Vilfredo Pareto, it specifies an unequal relationship between inputs and outputs. I have this condo that will. not. stop. bothering me. I’m not sure yet that I want to get rid of it because it’s so easy to rent out, and the profit margin is pretty darn good. Over the past few months, my average hourly rate for this property has still come in above $100 (despite the events listed below and tenant turnover). I haven’t placed poor tenants, per se, but my first tenants in this property divorced. Right before they moved out (after they had finished out their lease) someone in the building started a fire. Luckily, there were no injuries, and there was no damage to the units on the side of the building where my condo is located.
Unfortunately, there was fire damage in the attic, which rests directly above my unit. The HOA hired contractors to fix the damage. While they were working on it, they accidentally loosened some wires, cracked my ceiling, and damaged my unit’s air conditioning. Did I mention these tenants have four kids, one of which is a newborn? And while we’ve had a mild summer here, this particular week we had nothing but beautiful weather and temperatures in the 90s. Sigh.
On Trusting People
My first move was getting a technician in there who I had used before. His pricing had been reasonable in the past, and when he saw the property and the damaged AC, he, like many other contractors, quoted me for both recommended repairs and necessary repairs. The recommended work would cost nearly $800. I settled for a charge of $500 to clean the evaporator coil. The tech said that he’d fix the cooling issue and he’d do it the same day I called him.
Only it didn’t fix the cooling issue. He was nice enough to come back and troubleshoot the issue. Suddenly he was on the roof of the building telling me the condenser needed to be cleaned. Normally, this would be “a free service,” he said, as he could “just clean it with water,” but “since he was on the roof without water access,” he’d need to clean it with nitrogen and charge me $250. This news activated my spidey sense. (Regrettably, it took this long to get there.)
Sensing my hesitance, he immediately dropped the price to $125. Half off! Awesome! I still said no. This guy sent me photos of a condenser that didn’t belong to my unit to demonstrate how dirty it was and why it definitely needed to be cleaned. I still said no. Guess what? All of a sudden he offered to do it for free! What a nice guy. Too bad my tenants were still living without air conditioning.
At this point I was definitely not paying this guy any more money. I called around and found out that the max I might have paid another contractor to clean an evaporator coil and condenser was $250. Let me remind you that I paid nearly $500 for one of those services. But at least I got a $250 service for free, right? No. This guy told me he cleaned the condenser off with a brush.
As with most things in life, you win some, you lose some. A two-minute call after I received the initial quote would have saved me almost $300. It’s easy to get complacent, and one positive interaction with a contractor doesn’t always indicate good future ones. If you vet one contractor, vet them all. I do this through Thumbtack, which provides customer reviews for anyone who responds to your bids for work. Unfortunately, in this case, I had been too complacent and didn’t use Thumbtack or shop around before giving this guy the go-ahead. I’m happy to report that since then, I’ve been able to adequately avoid similar situations.
If you choose to use a tool like Thumbtack, you’ll want to ask the typical “contractor questions.” Are you licensed and insured? Have you had any issues with the law? Ask for references and call them. Some contractors are insured but not licensed. Once during a roof-replacement project, the insurance company sent over a man who had been convicted of some hardcore drug charges. We went with someone else. Another highly recommended handyman we worked with was later arrested for violating a restraining order. Sometimes even referrals with references can let you down! Ultimately, you may not be bulletproof, but due diligence can help you avoid facing more issues than you may have otherwise encountered.
Have you had a bad experience with a contractor? What did you learn from the experience?
Drop me a line in the comments section below.