I'm panicking! Just bought my first property.

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I'm panicking! Just bought my first property.

Jeff Bisgier
Brewster, NY · Member since 2016 · 33 posts · 16 votes

Hi folks. I joined BP awhile back when my wife and I decided that we really wanted to get involved in real estate investing, namely flipping. I've tried to educate myself and have looked at a bunch of properties but never found the right one and didn't feel we were totally prepared anyway. I kind of laid off my search over the past few months.

Fast forward to last month when my agent sent me a listing for a foreclosure property about a mile from my home. It's a 2bd/1bth, detached single family, 1201sq ft, 1 car garage. Listing price was $125k. Property taxes are approx $4200/year, which is low for this area. Got a showing and the house seems very solid. Needs updating, but no signs of water damage anywhere, no mold that we could see, finished basement was totally dry, newer windows. Just needs a good cleaning, a kitchen and bath update and some cosmetic work. We may opt to put in new floorsThe house is a 4 minute walk to the train station and a 2 minute drive to 2 major highways, so an amazing commuter house. Great rental potential. My agent and I checked rental comps and it appears that $1600 - 1800/month is a solid number. We told my agent that we wanted to submit an offer. He got back to me the following day that the house was going to be auctioned off online.

To make a long story short, I signed up for the auction site. The opening bid was $52k and there was a reserve (plus this had to be an all cash sale). I wasn't super keen on buying this way as I had no experience, so I decided I would only go as high as $80k, figuring that I'd either get outbid or the reserve wouldn't be met. In the last minutes of the auction, there was some steady bidding action. When the price got to $77k, I submitted what was going to be my final bid of $79.5k. To my surprise, I won the auction but the reserve wasn't met. About 30 minutes later, I got notified that the seller decided to take my offer, even though it was less than the reserve price. That was 3 days ago and myself and the seller have already signed the contracts and earnest money has been sent to the title company.

So why am I panicking? I feel totally unprepared. I had to act so fast because of the auction and now I kind of don't know where to start. Even though I read so much months ago, I never really read anything about being a landlord. I also didn't know much about doing all cash purchases. I'm going to try to search for as much information as I can on my own, but if anyone has any advice or links to helpful posts or websites, I'd truly appreciate it!! Here are a few of my big concerns:

1. I'm laying out a lot of cash. I'm planning on getting an equity loan from my bank after 6 months to replace my bank account. Any advice on this?

2. Any good sites on what order to do rehab work in the house? Not sure where to start.

3. Where can I find the best info on being a landlord? I see there is a lot right here on BP that I'll read through, but anything else? Also, what about lease forms, etc.

4. How do I do background and credit checks for potential tenants? Am I better off listing with a real estate agent rather than placing ads?

Sorry for the long winded post, but I'll be grateful for any advice. Thanks!!!!!

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Carl C.
Investor · New York City, NY · Member since 2014 · 289 posts · 374 votes
9y

@Jeff Bisgier Your panic is understandable but believe me, many of us have been in similar positions and for most people it works out. You say you have been reading and preparing yourself so trust yourself a little. First things first. Decide what work you plan to do. Set a budget for yourself and figure out if you will contract the work or do it yourself. A good cleaning and fresh coat of paint go a long way. Figure out a schedule to get work comleted on time. I assume you want to get it rented as soon as possible so don't over do any reno. Make it just nice enough that people will be attracted to it. As you Say Brewster has a good location for commuters, you'll find a renter. It sounds like you are most worried about the reno work. Reach out to me at any time if you like. I'm up in Dutchess county regularly and happy to relay some of my experience with my first reno/rental in Poughkeepsie. 

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  • Robert Shelton
    Hampton, VA · Member since 2016 · 20 posts · 7 votes
    9y

    You paid cash. That's a HUGE amount of stress lifted since the mortgage is usually the largest time sensitive cost. You bought yourself time with that.

    Get a GC. Look over everything. I suggest deciding if you're going to rent or flip up front as it will likely affect your rehab costs a bit.

    If you plan to rent, while the fixing up is going on, find either a tenant or property manager. If PM, do that immediately so they can begin their marketing. If self managing, start your marketing closer to completion of rehab.

    For home pricing, I prefer Redfin over Zillow and I suggest looking at sold, not for sale comps. For sale is an estimate or a prayer. Sold is closest to true value you'll find since that is what people have actually paid.

    For screening, decide before searching what you are comfortable with. Make sure those comforts are met. Consider incomes, criminal history, credit history, past evictions, bankruptcy, but check on federal and your local regulations as far as fair housing. 

    Remember to breath. We all have either been or hope to be where you are one day. You WILL make mistakes. Learn from them and try not to repeat. Good luck in your endeavors, sir. I'm new to this myself. Hopefully, I'm able to remain calm when I get to your position.

    1Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    For what ever it's worth, I always have the moment of panic 24 hours later after I've under contract. I always have this bad feeling that I must be the sucker that overpaid, that the seller would have come down, that there's something I didn't know, that if the property was a great they would have never sold it, etc. For some investors I think that feeling is inevitable.

    My coping mechanism (for lack of a better phrase) is to rerun all of the number again from the start. If it all looks good, pencils out, stress tests, etc. then I know I'm good to go. Then it's about planning and dealing with whatever comes up in the inspection.

    As for your specific questions, you might consider a vetting a property management company for the first year.  It would cost you (obviously) but they generally have standard forms for leases, can easily do background checks, know where to advertise for tenants locally, and local contractors where there's a relationship.    

    1Reply
  • Ed B.
    Real Estate Investor · Sacramento, CA · Member since 2010 · 298 posts · 103 votes
    9y

    I would recommend you keep it for at least a couple years to see how you like renting it. Could be it's a great rental and fairly easy to rent. Resist the temptation to sell now for a quick buck. Why sell the goose that lays the golden age? I've sold properties I later wish I'd kept.  Appreciate what you have, because it sounds like you may have lucked out on getting this one, and next time you may not get so lucky.

    1Reply
  • Chris Low
    Investor · Redding, CA · Member since 2016 · 180 posts · 102 votes
    9y

    Your numbers look good. Yes, it's scary because you're just starting out, but think of it this way: the numbers wouldn't be any different on this deal whether it was your first deal or 50th. The only thing that would be different is your level of experience. Solid numbers are your foundation on any, so it sounds like you did very well. Hope that helps. To answer your questions:

    - start now to identify a local bank that does portfolio loans and let them know your plans. If you need to re-fi in 6 months, you can't start the process too early because that will come up on you fast! And not every lender will re-fi after only 6 months of "seasoning." So start looking now. You'll find one - it just takes some time.

    - Check out the book on flipping houses and the book on estimating rehab costs. These two books by J Scott will give you a lot of good info about the order of work and what to expect in costs. Both are available on the BP website.

    - BP also has a book on landlording written by Brandon and Heather Turner. That's a good one, and so is Landlording on Autopilot. Tons of good info there as well as lease forms.

    - See above for info on background checks. Sounds like most people post their rentals on Craigslist if they have only one rather than paying an agent for listing. Try that route first. It's free, everyone knows about it, and renters are becoming accustomed to looking there first.

    Good luck!

    1Reply
  • Jon Q.
    Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    9y
    Originally posted by @Jeff Bisgier:

    Hi folks. I joined BP awhile back when my wife and I decided that we really wanted to get involved in real estate investing, namely flipping. I've tried to educate myself and have looked at a bunch of properties but never found the right one and didn't feel we were totally prepared anyway. I kind of laid off my search over the past few months.

    Fast forward to last month when my agent sent me a listing for a foreclosure property about a mile from my home. It's a 2bd/1bth, detached single family, 1201sq ft, 1 car garage. Listing price was $125k. Property taxes are approx $4200/year, which is low for this area. Got a showing and the house seems very solid. Needs updating, but no signs of water damage anywhere, no mold that we could see, finished basement was totally dry, newer windows. Just needs a good cleaning, a kitchen and bath update and some cosmetic work. We may opt to put in new floorsThe house is a 4 minute walk to the train station and a 2 minute drive to 2 major highways, so an amazing commuter house. Great rental potential. My agent and I checked rental comps and it appears that $1600 - 1800/month is a solid number. We told my agent that we wanted to submit an offer. He got back to me the following day that the house was going to be auctioned off online.

    To make a long story short, I signed up for the auction site. The opening bid was $52k and there was a reserve (plus this had to be an all cash sale). I wasn't super keen on buying this way as I had no experience, so I decided I would only go as high as $80k, figuring that I'd either get outbid or the reserve wouldn't be met. In the last minutes of the auction, there was some steady bidding action. When the price got to $77k, I submitted what was going to be my final bid of $79.5k. To my surprise, I won the auction but the reserve wasn't met. About 30 minutes later, I got notified that the seller decided to take my offer, even though it was less than the reserve price. That was 3 days ago and myself and the seller have already signed the contracts and earnest money has been sent to the title company.

    So why am I panicking? I feel totally unprepared. I had to act so fast because of the auction and now I kind of don't know where to start. Even though I read so much months ago, I never really read anything about being a landlord. I also didn't know much about doing all cash purchases. I'm going to try to search for as much information as I can on my own, but if anyone has any advice or links to helpful posts or websites, I'd truly appreciate it!! Here are a few of my big concerns:

    1. I'm laying out a lot of cash. I'm planning on getting an equity loan from my bank after 6 months to replace my bank account. Any advice on this?

    2. Any good sites on what order to do rehab work in the house? Not sure where to start.

    3. Where can I find the best info on being a landlord? I see there is a lot right here on BP that I'll read through, but anything else? Also, what about lease forms, etc.

    4. How do I do background and credit checks for potential tenants? Am I better off listing with a real estate agent rather than placing ads?

    Sorry for the long winded post, but I'll be grateful for any advice. Thanks!!!!!

    In order to generate the best return, you'll need to get your cash back out. 

    I'd suggest:

    (1) Rehab and sell the property

    or

    (2) rehab, get a long term tenant, then obtain a loan on the property at 75% LTV. If valued at $125K, you should be able to pull out approximately $93,750, but that may depend on your lenders requirements.

    Then use that cash, obtain 2 loans at 75% LTV and acquire two buy and hold SFR that generate a 12%+ COC or more.

    0Reply
  • Sophia Hullum
    Houston, TX · Member since 2015 · 4 posts · 2 votes
    9y

    I don't have any advice because I haven't been brave enough to take a big leap of faith like you've done. I just wanted to say Congratulations! Your situation is motivating to me! They say the hardest step is getting started and that is what you have done here.  It doesn't sound like a bad start either! Keep up the good work.

    1Reply
  • Jeff Bisgier
    OP
    Brewster, NY · Member since 2016 · 33 posts · 16 votes
    9y

    Wow!!! You folks are the best! I was out all day today and just logged in and can't believe how many helpful and encouraging posts there are on this thread! I am going to read and re-read everything you all wrote later tonight when I have some free time.

    THANK YOU ALL!!!!!!!

    1Reply
  • Kuba F.Pro Member
    Real Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes
    9y

    Congratulations to you for taking the first step, it's definitely the hardest!  Now breathe, and prioritize the things you need to do today, tomorrow, next week, then put one foot in front of the other.  

    0Reply
  • Sarah Ottesen
    Real Estate Investor · Strawberry Point, IA · Member since 2014 · 54 posts · 18 votes
    9y

    Wow!  I am excited for you!  Regarding the questions about landlording, I first want to ask you a question, do you want to spend your time collecting rents and managing the property(ies)?  If so, great!  I would suggest, like others, that you become familiar with the landlord/tenant laws.  As a landlord you have to be organized and document, document, document.  You have to have policies in place so that you can show the tenants you are being fair when you refuse someone to rent the place and approve another. I believe Bigger Pockets has some resources on suggested policies. 

    The city where we just recently invested (Dubuque, IA) actually has a required class that they make landlords take if they have a rental in the city.  I may be nerdy, but the class was fantastic!  It provided a lot of information about the rules a landlord needs to know to minimize the chance of getting sued by a tenant.  It also provided information regarding the city's expectations of you as a landlord and their expectation of your tenants.  Check with your city to see if they may have similar resources.

    In the end, to be honest, we decided to hire a property manager.  I feel really good about our decision.  This gives us time to pursue tasks that we enjoy.  It is not that we are trying to avoid the 2:00am calls from the tenants, it is just that hiring a company that has all of the policies in place is comforting to us!

    I am excited for you! 

    1Reply
  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    9y

    I highly recommend the Nolo legal books for learning about landlord tenant laws.  They may have state specific books, but I'm not sure if they have them for every state.  There is some brief info on their website - http://www.nolo.com/legal-encyclopedia/overview-la....

    If you haven't already done so, ask your agent to look up prior listings for the home on the mls.  If there were any issues with the house that the auction site wouldn't know about to disclose, you may find some clues in the agent remarks of old listings.

    Otherwise, it sounds like a great purchase.  How awesome to be right near metro north - that adds huge value.  

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    1Reply
  • Probyn Allen
    Woodstown, NJ · Member since 2016 · 3 posts · 3 votes
    9y
    Did you do a deal analysis to determine whether this was a great deal? What is your ROI on this investment?
    0Reply
  • Jerad Casto
    Charleston, WV · Member since 2016 · 42 posts · 37 votes
    9y
    Your post starts out saying you wanted to start off in flipping. If you've got $80k cash to invest in buy and hold, you could have gotten more bang for your buck with a larger multi family. Might consider putting another $20k in a kitchen, bath and cosmetic. If Zillow says ARV of $215k, it's probably closer $160k. After closing, you could replenish your $80k to your account and have that same $80k or so to put in a multi family. A lot of unknown variables in my post. Congratulations on your first property!!
    1Reply
  • Steven Mitchell
    Investor · san antonio, TX · Member since 2016 · 133 posts · 43 votes
    9y

    If i bought a place where the rents were 1600 for 80k i would be ecstatic, great job!!!  Rehab it and turn it over to a management company to deal with the headaches of landlording, then cash out refi.  Rinse and repeat.  

    @Andrew LOL that happens to me as well, good to see im not alone.  

    1Reply
  • Jeff Bisgier
    OP
    Brewster, NY · Member since 2016 · 33 posts · 16 votes
    9y

    I'm in the process of copying and pasting all the great information you folks have given me into a word document, along with all of the links to different forms and websites and books. There's also a few people who asked some specific questions that I'll be getting back to asap. I just want to thank everyone again for taking the time to help me out. I was feeling very overwhelmed when I wrote the original post and I don't feel so alone now. The more I can educate myself, the more comfortable I'll be, and there is so much education on this website!

    Thanks again everyone! You all are great!!

    0Reply
  • Matt R.
    Blue Springs, MO · Member since 2015 · 481 posts · 313 votes
    9y

    @Jeff Bisgier

    Congratulations!  I remember bouncing around for a couple of days earlier this year after I wrote a big check and signed a lot of papers.  It gets better.  :D

    To answer one of your questions:

    > 2. Any good sites on what order to do rehab work in the house? Not sure where to start.

    Your contractor can help with this, but one way to do this is to think about the way that the house was originally built.  The things that were put in first are buried under things that were put in later, so if you have to fix any of those "early" things, you do those first, so you aren't having to tear out something you just did.

    1.  Basic supporting structure of the house.  Things like: big cracks in the foundation walls, sagging beams in the basement, floor in the bedroom moves up and down two inches when you jump on it.  This stuff can affect the entire house.

    2.  Outside envelope of the house.  Things like: rotten wood around the windows, somebody didn't caulk around the dryer vent, the roof leaks or needs replaced.  Basically, you're trying to keep the weather on the outside.

    3.  Electrical, plumbing, heating and cooling systems inside the house.  Things like: outlets that need to be GFCIs, worn-out light switches, faucet that needs to be replaced, leaky drain pipe on a sink, bathroom vent fan that doesn't work, furnace needs repair, etc.  Fixing some of the electrical and plumbing things sometimes means opening up walls.

    4.  Stuff built into the interior of the house.  Things like: a new bedroom door, new kitchen cabinets, fixing closet shelves, etc.

    5.  Wall and ceiling finish and paint.  Things like: fixing holes in drywall, replacing walls you cut into to fix something else, staining the new kitchen cabinets, etc.

    6.  Floor finish.  Things like: installing tile, carpet, hardwood, vinyl.

    You may also have stuff to do in the yard (grass seed, trimming trees, shoveling snow, etc) and that stuff kind of happens as needed.  A lot of these things just aren't going to happen in the winter in New York, so they will probably come later on for you.

    Please remember that 1) I am not a professional contractor and 2) this is a rough guide.  Sometimes you do things "out of order".  For instance, if you look at the house on the first day and the light switch for the stairs is broken, you go buy a switch for $2 and install it, so you (and anyone else working there) don't fall on your butt when you try to go down the stairs in the dark.

    I hope this helps!

    Matt R.

    1Reply
  • Jayson Edwards
    Investor · Lees Summit, MO · Member since 2015 · 40 posts · 10 votes
    9y

    You made the leap, great job! The amount of help you've received in this thread has been tremendous. I learned a lot from it too!

    The main thing that caught my eye in your beginning post was about the property going to auction. For your sake, I'm REALLY glad you set a limit and stuck to it. Unfortunately, you may have been bidding against yourself. Auction sites are notorious for placing bids on behalf of their seller to get the price closer to or to meet their reserve. It still sounds like you got a great deal if all the numbers are in line, congrats on moving forward!

    1Reply
  • Orlando Perez
    Real Estate Agent · Diamond Bar, CA · Member since 2016 · 112 posts · 29 votes
    9y

    Congrats man!! Fight all the way man!  Best wishes!

    1Reply
  • Will F.
    Investor · Los Angeles County, CA · Member since 2012 · 962 posts · 279 votes
    9y

    I forgot who said it... but ideas don't get you success/rich. It's execution. You bought the property that's better then 90% of people who think or have ideas about REI.

    You'll figure it out

    1.  Plan.  2.  Learn 3. Execute 4. Rinse and repeat--but the 2nd time it will be MUCH easier.  the 10th time it's easier than riding a bike

    The hardest part of every fixer/value ad property I acquire is the first year or two.  Then they stabilize and everything get's better.

    Congrats again.

    1Reply
  • Betty Cruz
    San Antonio, TX · Member since 2016 · 240 posts · 163 votes
    9y
    Jeff Bisgier hi Jeff. Happy new year. I keep checking back on this post hoping for an update. Hope all is well!
    1Reply
  • Owen DashnerPro Member
    Lender · Omaha, NE · Member since 2008 · 1k+ posts · 1k+ votes
    9y

    The most important things to check first are structural and mechanical.  Is the foundation brick, block or poured?  Are you able to see any noticable cracks in either the foundation itself (assuming it isn't covered with paneling or drywall)?  Any cracks in the drywall (this can be an indicator of a shifting foundation)?  Is the plumbing copper/PVC/Pex, or galvanized/cast iron?  Is the electrical system updated to breakers, or still have a fuse box/knob and tube wiring?  What kind of shape is the roof in (and what material is it)?  What is the approximate age of the HVAC system, and is it currently functional?

    If the utilities have been off for awhile, you may want to have a plumber do a pressure test on the plumbing supply lines, and also run a camera down the sewer line to make sure there are no cracks. You may also want to have the plumber do a pressure test on the gas lines (if applicable) to make sure no cracks/leaks there as well.

    If the structural and mechanical components check out to a reasonable level of comfort for you, then you just need to go room by room and decide if you are going to change the layout at all.  If not, then it's as simple as making a list of all the items you want replaced and getting labor-only bids (you can pick the materials out yourself to make sure you are getting apples to apples bids). 

    Remember, this is like eating an elephant - just do it one bite at a time.  Break the project down into manageable steps and just check them off as you go.  Don't look at everything as a whole - you will only overwhelm yourself.

    Good luck!

     

    2Reply
  • Jeff Bisgier
    OP
    Brewster, NY · Member since 2016 · 33 posts · 16 votes
    9y

    Hi Folks!

    Hope you all had a happy new year! Just figured I'd give everyone a quick update since you were all nice enough to give me so much good info and advice. I should be closing this month (January). The seller wants a January 13 close date and my attorney is pushing for a January 27th date so that we can be sure we have everything title and deed related complete. Hope my attorney wins this battle. I'll update again as soon as I close. Fingers crossed that all goes smoothly!

    @Owen Dashner To answer a few of your questions... The foundation is actually stone. The house was built in 1920. I went back over to the house about 2 weeks ago and did another walk around the outside. I could not find any significant issues with the foundation (I'm no expert though). Drywall covers the basement walls inside, but there are no water stains or mold anywhere that I could see. The drywall looked to be in great shape. I wish I had looked closer at the plumbing to give you a better answer, but from what I saw, under the kitchen sink was PVC and there were some copper lines leaving the boiler. The breaker box was an upgraded 200 amp service. Asphalt shingle roof. No water stains on attic ceiling (drywall ceiling). The boiler is a Peerless MI-04-STDG-WPC. I've been trying to search online to find out the approx age but haven't had much luck. My utility company won't hook up the gas meter until a pressure test is done, so that part will need to be done. Thanks, Owen!

    @Matt R. Thanks for that comprehensive list on what order to tackle projects!! That's great!

    Thanks again to everyone else. I've reread every response in this thread at least 4 times already and it just keeps helping me. It's the gift that keeps on giving!! LOL

    1Reply
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