I have to admit--I am sooo nervous about buying my first rental property.I spend hours on the MLS, look at properties left & right, analyze until my eyeballs ache—but I still haven't been able to work up the nerve to make an offer.
I’ve read tons of stuff on how to landlord, find good tenants, do due diligence, etc.—BiggerPockets has been like, a godsend.But I still have the fear of getting a tenant from hell, based on the horror stories that I hear about landlording headaches.
Also, even though I've downloaded the BP rental analyzer and have tried to factor in as many numbers as possible per potential dealâI'm not gonna lie, all this stuff about "CAP rate" this and "2% Rule" that makes my head spin, lol!
Wasn’t a particular question—just needed to vent a little about an apparent acute case of analysis paralysis!But if anyone’s been there and is now doing great, I’d sure love to hear about it, lol! ;-)
I get it! I'm nervous too! It's a good excited nervous, but I still have nerves.
What I do when I'm frozen with nerves, I watch this clip from the movie butter.
(If it doesn't work just google "the worst thing that could happen butter")
Just go for it!
Turn your analysis paralysis into a need-to-do list once the purchase is made.
Congrats to you and keep us informed.
Every landlord has horror stories just like you will soon have some of your own. But the point to remember is, How many landlords have great experiences and make a lot of money through rentals. Just like with the evening news, the bad stories make great headlines, that is why you see so many here.
I have similar fears and worries, each time I buy a new rental, but all those fears and worries disappear when you get that first check! and then again and again each month.
The only advise I might lend on the analysis would be to determine what spreads you are comfortable with or require, and then when you find a deal that matches that, pull that trigger!
You will always be learning and modifying your systems and processes but until you take action and buy that first one, there will be nothing to improve upon.
Now get out there and buy a house!
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the key isn't doing a home run on your first deal but getting started and not losing money! Every deal we have done has gotten back as our learning curve "expense" has decreased! We don't follow any of the 1%,2% or 50% and have been succesful investing in class a properties.
In addition to the forum, podcasts and blogs. Check out individuals signaturs. Many of us including myself discuss our strategy and model in more depth. So this is another great resource.
@Vonetta Booker , I feel you. I just made an offer on a duplex and was informed today that we're in a multiple offer situation and I have basically 24 hours to submit highest and best. I was nervous making my initial offer, as I'm not at all comfortable with rehab budgeting and there's one item in the duplex that REALLY concerns me. I talked to a buddy of mind and my realtor (although, I need to discount his opinion even though I think he's great, because he's obviously trying to make a sale, too) and they both seem to think my estimate is WAY too conservative. My biggest fear is overpaying and having a rehab budget that gets blown up. I am going through analysis paralysis right now.
It's basically a 2% deal before rehab and probably still a 1.5% deal after factoring rehab costs. In my area, 1.2-1.4% is what I'm finding. I'm still scared to pull the trigger!
YOU ARE NOT ALONE. :-)
Thanks for your encouraging words, everyone! (For some reason I missed my reply notifications via email, so at first I thought no one responded, lol!)
@Michael Evans , I really liked your advice about sitting still & letting God direct my course. @Justin Cooper , I also liked the part about just determining what spread I'd like & what my needs are & go from there. I'm narrowing it down to a particular area I like, and I'm in the process of deciding if I want to do SF or MF, and looking at properties.
I guess I just have to find & maintain that balance of doing my due diligence--but not overthinking it to the point I wind up doing nothing! Thanks, and I'll keep you guys posted. :-)
Long before Bigger Pockets hit the web or there was a web a fabulous tool was developed to let you know if it could be a decent deal or not. They are now widley available at any Wal-Mart. Its a calculatior. Sometime too much info which is on this site is confusing. Stick with the calculator. If it makes money it makes money. If it doesnt it doesnt. The 99 cent tool from Wal Mart can give you a yes or no in mins. Think of it like the old Magic 8 ball. Trust the calculator ! Good Luck
I can feel your pain! My wife and I just got our first property, and we had a lot of the same concerns. For me, it all came down to 3 thing when looking at the property:
"Numbers" means "do the numbers make sense?"
"House" means "is the house really in the condition I think it is?"
"Purpose" means "is there something else I should be doing in life?"
If these 3 things match up, then pull the trigger! Good luck :)
When you say "I spend hours on the MLS, look at properties left & right, analyze until my eyeballs ache—" I completely know what you are saying. I am not on the MLS but since I learned about this website I have been completely addicted...I love reading stuff on this website.
I currently have one rental property and own my own primary residence. After this deployment I will have some cash saved up and I plan on putting 20% down on another. I have to say since renting that first rental out in 2006 Ive only had 3 tenants and Ive never had any major issues. You select the tenant! I am a firm believer, it does not take long to have a conversation with someone and find out where there head is...
When I screen a tenant, Im looking for an older mature type couple that has their head on straight. I have to say I am nervous about getting another property too, but if I can have the success Ive had with my first Ill be golden!!!
Just got for it! Make it a calculated risk. You are going to have to put out quite a bit of offers to get one accepted at the price that you want. Once you get a few offers rejected you will realize that you will not be able to be so picky.
I suggest you try to find some off-market deals, as those are usually the best bang for your buck.
I have a couple rentals, both off-market deals. I just jumped on them, and they worked out beautifully! Good Luck, Happy House Hunting!
@Mark S. If you spent a lot of time working on that first offer and that was the best you could do, that that is still the best you can offer! Just because they are calling for highest and best does not mean you have to change your offer. If you are nervous about things, stay with what is feels right but take action. You never know, you might have already been the highest and best they have!
@Vonetta Booker Depending on your market, I would be looking at both SF and MF. Here in Denver the market to too dry to be that picky. I look at everything but have slightly different criteria for SF vs MF. I have my criteria spelled out already so I can simply plug the data I have in, see what I should offer and then I can pull the trigger.
I used to get hung up a lot with analysis paralysis as well but once I sat down and look at all the ways I was running numbers I realized I kept coming back to the same 3 or 4 criteria. So I threw out the other ways and now focus on just those 3 items. I run the numbers, do a quick gut check to be sure, and pull the trigger!
@Vonetta Booker You're not alone. Everyone's nervous about anything new that involves getting out of the comfort zone. Take it slow, make sure the numbers work, but at some point you have to take a deep breath, feel the fear, and walk through the fire anyway.
Adrian Tilley, Live Oak Properties | [email protected] | 720‑943‑4403
@Leon O. --I do keep my eyes open for off-market deals, although I must admit--I don't market for them nearly as much as I should! (Working on that...) I'm also still trying to hone my negotiation skills when it comes to private sellers --i.e. good conversation, asking the right questions & structuring deals correctly based on their situation.
@Jay C. --Yes, the calculator is an awesome tool--and I didn't even have to go as far as WalMart, it's right on my phone, lol! ;-) But even with its simplicity, all this info overload still has me punching in formula after formula on it!
@Justin Cooper , what are your 3 or 4 main criteria based on?
I use the 1% rule to see if it would be worth getting in the car and driving by and continuing the investigation or not. It does not have to be perfect as each market is different but it gets me close enough to know if I should keep going.
The second one is the cashflow. I just look at gross numbers, rents vs mortgage payment. Again, this is a guide but based on my market, the type of property I am looking at (SF vs MF) and my personal requirements, I can tell if it is worth moving forward or if I should drop it. If it hits that minimum, I keep moving forward.
The third is the cash on cash return. I use this to see how the property would compare to my other investments. It keeps things apples to apples where the 1% rule and the cashflow might not. If it is a SF, I can compare it to my stock investments, my other SF's as well as MF's. As a hard money lender I like to leverage my cash as much as I can but sometimes I buy conventionally so this allows me to compare everything.
My advice would be to realize that an investment property isn't the same as a primary residence and you will likely make offers on numerous properties before closing a contract. We put in offers on at least 6-8 renatls before we ever even recieved a counteroffer. Then there is the negotiating phase where another two fell out of contract. We finally closed on our first investment property 7-8 months after we made our first offer.
Now, less than a year after our first investment property closed, we are under contract on our fourth.
You have to get started. I started and didn't know cap rates and the etc. buy a good solid property and get your feet wet. Buy cheap in a good area with high rents and learn. I feel you won't learn until you put the practices to work on a real property.
GOOD LUCK and ENJOY!
Enjoy the excitement. When I buy a rental house now, it's just like going to the store and getting a gallon of milk. I have sold one and bought nine this year, it's creating income but no longer is it exciting. So now I have to set goals, either number of rentals or gross rents to keep the excitement up.
I echo what someone said, its different from buying a personal residence. I do like to believe that I could live in a house if I buy it (who knows, maybe one day if its vacant it will make sense to do so) but other than that its just about the numbers and the rentability.
Also, as someone said, you may need to make a few offers before you get your first place. The idea is to spend as little money as possible going in so you tie up as little of your cash as possible and maximize any appreciation down the road. You should be making offers that make you feel uncomfortable and you'll get a lot of no's.
Don't rush into a deal if your Spirit tells you otherwise. I recommend that you develop an investment model based on your risk tolerance. I have several real estate investment models:
- Buy and Flip
- Buy and Rent
- Buy and Lease-to-Purchase
For each model I have three different scenarios:
- 100% financed purchase and rehab with the buyer paying for closing costs and reserves
- 100% financed purchase with the buyer paying for closing costs, reserves and rehab
- 65% financed purchase with the buyer paying for 35% down payment, closing costs, reserves and rehab
For each model and scenario I have inputs (purchase price, 1st mortgage terms, closing costs terms, 2nd mortgage terms, selling price, minimum monthly rent and reserve requirements), actions (calculations based on inputs such as mortgage payment and monthly expenses), and outputs (down payment, closing costs, rehab costs, reserve amounts, cash required, cash-on-cash ROI over term of investment and annual ROI). I then just run properties that meet minimum requirements through each scenario based on the investment model type.
I decide before hand what my cash-on-cash ROI requirements are (25%), my minimum profit per deal as a dollar amount ($5,000) and my minimum annual cash flow ROI for the 1st year (15%). If a property doesn't meet my minimum requirement, then I discard it and move the next one. If it meets and exceeds, I look at the deal closer and sharpen the numbers.
I know everyone won't go through the effort of developing detail investment models, but this is business to me. I'm not trying to hit home runs on any one deal. I just want to hit singles consistently and never strike out. I have a very low risk tolerance, so I will go through 100 properties to find that one deal that I have a 95% confidence level that it will be successful. I used to be a stock options trader and a semi-professional Blackjack gambler, so I know the importance of money management and determining your exit points before you even enter the investment.
Build a system, back test it, use it and refine it. That's my two cents.
God Bless You!
@Justin Cooper , you're right. Maybe I should have just stuck with my offer, but it really wasn't my "highest and best," so I did come up some. It turns out there were 5 offers that first day, including mine, and they accepted another offer. On to the next one!
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