Story of a Trying Newbie -- My 1st Purchase

7 Replies

Hello, everyone. I'm a new real estate investor. I would like to share the story of my first home. It's not a success story, rather a learning experience. Since I'm not good at writing, I organized the story in the easiest form for me. If the pictures don't come out in the post. I'll post them later.

Time

Fall 2008

Situation

  • Graduated from state college w/ no student loan
  • Internship job paid for college expenses
  • Parents gave me some money intended for college tuition. Majority of it’s saved.
  • Living with parents in SoCal

Goal

  • Move out of parents’ house
  • Buy a property close to work (30min in traffic to Downtown LA)
  • Target area: Pasadena, San Gabriel Valley (A neighborhood for safety reasons)
  • Price range $300K~ $400K for 2bd condo

Action

  • Budget expenses to save more money for 20% down payment
  • Created a spreadsheet and figured I could save $1000 per paycheck, $2000 per month
  • Created a spreadsheet to project my savings

Time

Spring 2010

Situation

Own more than $80K in the savings

Goal

Purchase target condo in Pasadena (short sale, some repairs needed)

Action

  • Made spreadsheet to find out if I can afford the condo and the repairs needed
  • Proceeded to offer and eventually got the condo with 20% down
  • Received 1st time home buyer credit, $8000 from fed, $1000/3 years from state
House
Down payment $71,800
House Price $359,000
Loan $287,200
% Down Payment 20.0
Loan Term (Year) 30
Loan Interest Rate 5.25
Monthly Payment $1,586 

Time

May 2010 – Jan 2014

Situation

  • The majority of my paycheck is tied up in the house
  • Frequent plumbing problems including leaky toilet from upstairs unit
  • HOA reserve is underfunded
  • Condo hacked by renting out spare bedroom at $900/mo

Goal

Upgrade to a more effective investment property

Action

  • Fixed up condo with credits received
  • Put in new flooring
  • Sold condo at $428K, cashed out with a total of $200K
  • Purchased SFR in the suburbs (Pomona) and leased it out for $500/mo Free Cash Flow
  • Left with $80K in the savings and growing at $3400/mon.
  • Now looking for another investment property

Lessons Learned

  • My parent's education fund for me gave me a kick start. Not having student loan is great. I went to a state university. I felt I got quality education at an affordable price.
  • Budget is my best friend. I keep track of every dollar I spend using an app.
  • Not all short sales are created equal. Bank-approved short sales can be easier than what your agent says.
  • Interview many contractors. I interviewed at least 8 contractors and tried to schedule them back to back with each other. I typed the scope of work and handed a copy to every contractor.
  • Don’t overdo it. I probably spent more than I should on the flooring. The buyer purchased the property as a rental unit. So I don’t think a cheaper grade would’ve made any difference on the sale price.
  • Staging is important. My cash buyer ended up paying for my furniture, which saved me the hassle of moving them out of the second-story condo.
  • Some cities, like Pasadena, may require an inspection before you can sell your house. I didn’t know this. It was hard to schedule an appointment with the city inspector, and he withheld the permit because of a non-working electric outlet. That could’ve cost me the deal.
  • HOA's cannot be trusted. They are quick to make rules, but slow when you need anything from them.
  • Save your annual HOA reports. The buyer may ask for it. In that case, you won't have to beg the HOA for another copy.
  • Now I can save $3400/mo after selling the condo. It’s a big relief that I don’t own a property that eats all of my paycheck every month.

@Fay Chen

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Sorry you left Pasadena, Fay, but it sounds like you're better off. Spending too much of your income on housing really does cause problems.

Do you attend and REIAs in your area? If not, start. Real Estate is a contact sport (and a team sport at that). Search on MeetUp.

Your point about underfunded HOAs is really important. We're in one of those now, and we're pressing the HOA to increase fees. Without special assessments (which need to be approved by owners) the board can do emergency increases so we keep pushing. We've gotten them to handle some deferred maintenance on our behalf (but not everything we think is needed).

You may have figured out that investing in condos is generally done for income, not appreciation: they generally don't appreciate unless you can force it with appropriate upgrades (but even then there's not much room). We're living in this one because it suits our investment goals, but the plan is to rent 1 or 2 rooms in it (which will just about offset the mortgage) so we won't worry quite as much about the HOA. And the layout lets us keep the master suite and use it as a place to stay when we're Pasadena.

Best of luck !

well done for taking action.success lies ahead

@Bruce Olsen :

I sold the condo because I was afraid a special assessment is coming. During a repair, I got to talk to the contractor. He said he's fixing something in the complex 2 or 3 times a week. The HOA got a quote to replace the plumbing several years ago. It was over $1M so they decided not to do it. That's what motivated me to sell the place. When I was selling the place, another condo in the area was selling with a special assessment of $700! I'm sure glad I got out of there without losing money.

There are a lot of apartment complex in Pasadena. Some of them are really old and renting below market. That's what I would like to own eventually.

Special assessments and lawsuits are great buying opportunities for individual units. We just missed such an opportunity near San Francisco where we used to live... one large complex had a huge special assessment and a lot of owners bailed out. When the end of the assessment was within sight, buyers started coming back in. At the lower prices they made good rentals, but after prices increased (which was where we became aware of it) there was no real income potential. 

We're looking at owning rental properties out of California, because the revenue per door is so much higher, even allowing for considerable extra risk. Unless you can figure out how to add a lot of value (or you inherit it) it'll be a challenge to make good money on California income property. And repositioning an apartment complex usually takes around 2 years, as you cycle through tenants, and it's capital-intensive.

But it can be very profitable.

Congrats Fay! 

Thank you for sharing.  I would call that a success.  You learned a lot of valuable lessons, that can only be learned by doing.  Good luck!

Originally posted by @Bruce Olsen :

It's difficult to get cash flow in SFR in SoCal, even in the B & C neighborhood. Pasadena is even harder. My HOA was $325 and that was the lowest in the area!

For my second purchase, I worked with a friend to set up a rooming house targeted to students and working professionals. So far that's been great. So it seems the key to maximize cash flow from rentals in SoCal is to tie it with services...

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