This is my first post here on BP. I've been listening to the podcast for about a month now and have given myself 6 months to close on my first property. I am 23 years old, and would love to learn from all of you and any tips/experiences you'd be willing to share.
I'm currently working in the Silicon Valley and plan to purchase in Austin, TX. What pitfalls do you notice 1st time real estate investors getting into? Is there any advice you wish you had known prior to buying your first property? If so, what is it and why? Would love to hear from you!
I am a renovation contractor and DIY landlord working in low-income properties that are 50-100 hundred years old in my city. My city is one of the highest rental cash-flow major population centers in America. The pitfall that I have a special advantage seeing is people who are trying out long-distance investing for the first time getting used by unscrupulous middlemen.
Again and again, you'll see posts here on BP from people out on the West Coast trying to get into rental properties in the Midwest for passive income. Of course they want the highest possible return for their money, so they look hard at marketed "C-class properties" in "working-class neighborhoods" in large cities like mine.
You'll see utterly insane posts here on BP about it all the time. This dude with no profile pic on his second post will ask about buying a $179,000 triplex built in, say, 1925 in a place like Turtle Creek, Pennsylvania. he'll have some description sheet ginned up by the seller with some vague language about the questionable roof and the convoluted heating system and all he'll want to know is if it's a good deal...the cash flow upside looks awesome, PLEASE HELP!!!
What are you supposed to tell these people? That they're walking into a minefield of problems with absolutely no chance of coming out the other side without blowing off their legs? I had this one guy asking me if I had "systematized" all the problems of defunct housing down a checklist and a guide and could I share the .pdf with him.
But the con artists who sell this garbage housing to newbie long-distance investors must find plenty of takers, because the takers show up here with alarming frequency. There's also an extraordinary tendency among these newbies only to listen to the opinions that they want to listen to, no matter whom the opinions are coming from, discounting any voices of sanity that tell them to avoid long-distance deals that no one but a local specialist could possibly make money from.
If you're going to go long distance, buy renovated turnkey from people with a long-term record in the business. Don't spend time looking at unrenovated housing approaching 100 years in age. Don't buy a long-distance BRRRR "opportunity" for your first investment. Don't believe that anything marketed to you as a C-class neighborhood is anything but a slum. Stay away from occupied foreclosures, properties acquired in a tax sale for unbelievably low prices, anything described as a "fixer-upper" with "strong investment possibilities."
Real estate is often a very rough business. You cannot assume that all the people in it all have clean hands and clean hearts and nothing but honorable intentions.
Rental Property Investor · Dayton, OH · Member since 2018 · 234 posts · 183 votes
7y
Always expect the worst to happen with your tenants, they can be good people but still cause major damage to your property. Always have a very strong lease agreement and be sure to have a refundable security deposit, that way they have incentive to not ruin your property as much!
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
7y
Pitfalls? Too many to list. Here are some main points to take away:
1) Don’t invest in markets you don’t know.
2) Everything in life has a price. Something is cheap for a reason so is something expensive.
3) Why would someone rent from you when the cost to own is much cheaper to own, and the barrier of entry is so low? If you buy these cheap assets, what type of tenant do you think they are?
4) If you decide to invest, have adequate reserves.
I am a renovation contractor and DIY landlord working in low-income properties that are 50-100 hundred years old in my city. My city is one of the highest rental cash-flow major population centers in America. The pitfall that I have a special advantage seeing is people who are trying out long-distance investing for the first time getting used by unscrupulous middlemen.
Again and again, you'll see posts here on BP from people out on the West Coast trying to get into rental properties in the Midwest for passive income. Of course they want the highest possible return for their money, so they look hard at marketed "C-class properties" in "working-class neighborhoods" in large cities like mine.
You'll see utterly insane posts here on BP about it all the time. This dude with no profile pic on his second post will ask about buying a $179,000 triplex built in, say, 1925 in a place like Turtle Creek, Pennsylvania. he'll have some description sheet ginned up by the seller with some vague language about the questionable roof and the convoluted heating system and all he'll want to know is if it's a good deal...the cash flow upside looks awesome, PLEASE HELP!!!
What are you supposed to tell these people? That they're walking into a minefield of problems with absolutely no chance of coming out the other side without blowing off their legs? I had this one guy asking me if I had "systematized" all the problems of defunct housing down a checklist and a guide and could I share the .pdf with him.
But the con artists who sell this garbage housing to newbie long-distance investors must find plenty of takers, because the takers show up here with alarming frequency. There's also an extraordinary tendency among these newbies only to listen to the opinions that they want to listen to, no matter whom the opinions are coming from, discounting any voices of sanity that tell them to avoid long-distance deals that no one but a local specialist could possibly make money from.
If you're going to go long distance, buy renovated turnkey from people with a long-term record in the business. Don't spend time looking at unrenovated housing approaching 100 years in age. Don't buy a long-distance BRRRR "opportunity" for your first investment. Don't believe that anything marketed to you as a C-class neighborhood is anything but a slum. Stay away from occupied foreclosures, properties acquired in a tax sale for unbelievably low prices, anything described as a "fixer-upper" with "strong investment possibilities."
Real estate is often a very rough business. You cannot assume that all the people in it all have clean hands and clean hearts and nothing but honorable intentions.
1. They do not have enough in reserves cash wise should something go wrong that is unexpected.
2. While preparing to for their first purchase they spend all of their time worrying about running numbers, which in my opinion is easy to do once you find a system that works, and they do not spend enough time researching the tenant/property management aspects of a potential deal which are a lot more intricate than running numbers in almost all cases.
Flipper/Rehabber · Columbus, OH · Member since 2018 · 51 posts · 22 votes
7y
@Mikey Maher
Hi Mikey,
In regards to rehabbing or flipping a house, always overestimate how much your repair costs are going to be. Even if you do the repairs yourself, it can add up quickly. There are several ways to save on material whether it be through craigslist or overstock warehouses, you can find ways.
Another thing that I didnt expect was how much closing costs, taxes and fees were when buying or selling a house. I thought that if i bought a house for 50k, rehabbed it for 10k, and sold it for 100k that i got 40k profit.... I was wrong!
Keep researching, reading and expanding your network and you'll be well on your way. Good luck to you.
Congrats on working on buying your first property! That in itself is a huge step.
I would recommend providing value to investors in the area as a free internship. Eventually you will be able to learn and start getting deals in, plus you get to pick which part of real estate you like.
Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
7y
@Mikey Maher First of all, welcome to Austin! As everyone has mentioned, there are numerous pitfalls to consider. The ones I see most with investors are:
1) Not having enough cash to handle expenses and rehab
2) Unrealistic expectations on returns (especially in a hot market like Austin)
3) Lack of patience
Keep us posted on your plans and I’d be happy to connect if you would be interested to talk in more detail about our current market.
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