What you wish you knew for your first deal

Member since 2019 · 32 posts · 18 votes

Hey everyone,

My husband and I are looking into investing in our first single family or multifamily home. We are practicing more with the calculators and assessing deals but I'm sure there are plenty of things we haven't considered or encountered. So I am wondering what is something you wish you knew when you were first starting out? Hidden expenses? Finding tenants? Loans, realtors, etc? Anything you can think of I'm sure will be helpful! Thanks in advance.

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Spencer Cornelia

Investor · Las Vegas, NV · Member since 2017 · 321 posts · 524 votes

@Jennifer White you'll never be fully ready to buy your first deal. I don't think humans can really learn until they go through something themselves. Sure, you can understand how to plug in generic numbers into a calculator, but you won't fully understand the reason for the numbers until you own a property. It's not until you FEEL loss that you can understand how to avoid it. It's not until you FEEL profit, that you know where to pursue it.

For me, my first "deal" was a 4plex here in Vegas using seller financing. I wish I knew then how much reserves would be needed for a D class property and how to adequately prepare for economic vacancy (late payment, evictions, etc.).

I think we as a BP community tend to really focus on numbers and spreadsheets but forget the real estate is centered around people.

The people who will be managing your property, the people who will be living in your property, the people who will be living in the community, the people who will be creating jobs for your tenants, the people who will be fixing your property. All of these things matter more than a spreadsheet calculation IMO.

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Jonathan Farber
Rental Property Investor · Medellin, Colombia · Member since 2016 · 231 posts · 215 votes
7y
@Jennifer White- I wish I knew what types of units rented for the most depending on certain areas. In some areas 2/1 bed/ bath will work fine and in some areas this is much less desirable.
9 Reply
Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
7y
I bought my first deal with a VA 0% down loan. I was so hot to get into a property and had little money, so I thought I was being creative.
I wish I had waited until I knew more about real estate and macroeconomic cycles
I wish I had bought a house at a discount, paying retail or close to is certainly one of the biggest mistake I've made (you make money when you BUY)
I wish I had more reserves on hand.
All of these things are common mistakes for beginners: going in with too little education, too few reserves, and buying a retail or close to retail deal.
[email protected]Podcast Guest on Show #301
22 Reply
Emily Powell
Investor · Houston, TX · Member since 2014 · 208 posts · 135 votes
7y
I wish I had done more due diligence on Property Managers. They will make or break your investment, so make sure you research multiple companies and call references.
15 Reply
Spencer Cornelia
Investor · Las Vegas, NV · Member since 2017 · 321 posts · 524 votes
7y
@Jennifer White you'll never be fully ready to buy your first deal. I don't think humans can really learn until they go through something themselves. Sure, you can understand how to plug in generic numbers into a calculator, but you won't fully understand the reason for the numbers until you own a property. It's not until you FEEL loss that you can understand how to avoid it. It's not until you FEEL profit, that you know where to pursue it.

For me, my first "deal" was a 4plex here in Vegas using seller financing. I wish I knew then how much reserves would be needed for a D class property and how to adequately prepare for economic vacancy (late payment, evictions, etc.).

I think we as a BP community tend to really focus on numbers and spreadsheets but forget the real estate is centered around people.

The people who will be managing your property, the people who will be living in your property, the people who will be living in the community, the people who will be creating jobs for your tenants, the people who will be fixing your property. All of these things matter more than a spreadsheet calculation IMO.
42 Reply
Karina Mejia
Realtor · Boston, MA · Member since 2019 · 7 posts · 10 votes
7y
@Alexander Felice Hey Alexander, any advice on how to avoid paying retail at this point in the cycle?
8 Reply
Matthew John
Rental Property Investor · Metro Detroit, MI · Member since 2016 · 277 posts · 269 votes
7y
Couple takeaways from my first deal...
If there is a clean out drain that's easily accessible, pay $100 for a plumber to stick a camera down there and see if there's any tree roots. I overlooked this on my first deal and had to deal with some hidden costs and problems for the first year!
When you're in the due diligence phase, make sure to visit the property after a hard rain. My first purchase ended up needing a new driveway and garage because it was sitting so low. Whenever it rained, there was 6-8in of standing water making it completely inaccessible.
These were 2 unexpected issues I experienced and costly fixes. Luckily I still got the highest Appraisal without having to fork out cash on these repairs, but it'll still end up costing me around $15-20k to redo the concrete and build a new garage which should last as long as I'm holding the property.
12 Reply
Karl B.
Rental Property Investor · Erie, PA · Member since 2015 · 1k+ posts · 2k+ votes
7y
For me I wish I would have walked the apartment building a few days prior to closing so I could have realized not all the agreed on repairs was completed - after the closing took place the RE lawyer I had hired told me I was out of luck.
3 Reply
Amy Heitner
Specialist · Huntingdon, PA · Member since 2018 · 162 posts · 147 votes
7y
Hey @Jennifer White,
Great question...was listening to Henry Lai...
Henry Lai is the president of TNE Capital Group. He started as a house hacker and is now a general partner in 1,749 multifamily units in Texas and Florida.
Regarding multifamily investing, he spoke about 10 things he wished he knew when starting out...
here is one of them,
1. You Can Really Learn a Lot From Passive Investing
As a passive investor you can ask a lot of questions of the sponsor. You can ask for the deed, the market research, the underwriting, the appraisals, inspections, property financials etc.

You can ask for one on one education, explain that you really want to understand how the deal works and they will spend time with you and explain.

You also learn how you should communicate with an investor in the future when it is your deal.

There will be things you like and things you don’t like. You can learn from that.

Get to know a lot of sponsors through conferences etc.

Ask sponsors about a deal that you are considering, obviously not one of their own deals.

Ask them what the strengths and weaknesses of the deal are.

Get an FAQ list and ask the sponsors of a deal you are thinking of being a passive investor in, ask all the questions until you feel comfortable.
4 Reply
Jim K.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
7y
Looking back on it now, I was just clueless, and I got lucky. I bought in a very solid area. It was a solid property. It was not the best deal, but it wasn't a bad deal at all. And the property has really treated us well since. Again, I lucked out.
My standard advice now is to tell people to NOT look for a home-run deal in the beginning, but rather, a solid stand-up double. Unspectacular numbers, solid build, something that's not going to need a gigantic renovation budget and for you to be coordinating a months-long parade of contractors first to bid on and then to do the jobs. Don't overextend yourself. And don't overspecialize. If you're looking to BRRRR a string of crapshacks in the Rust Belt from your home in Palo Alto, good God almighty, don't try to do it from Deal One. Walk before you can run.
20 Reply
Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
Save longer so as to have more reserves for deferred maintenance and lousy I inherited tenants . All my stuff looks amazing on paper but algorithms and calculations don’t account for so much of the true costs of running rentals .All you can do is have a pile of saved money for when Murphy strikes
11 Reply
Matt Pastier
Real Estate Agent · Central Florida · Member since 2013 · 118 posts · 102 votes
7y
@Jennifer White On my first deal I thought I was saving money by doing most of the rehab work myself. It took me 3 months longer than expected. It worked out fine in the end, and I actually don’t regret doing it because I learned a ton. On my second deal, the rehab work was way over my head (duplex), so I had no choice but to get a contractor. He’s now a great friend and helps me with every deal. However, had I continued buying single family instead of multi family, I might have continued trying to do everything myself which is a mistake. You’re actually not saving money (all things considered) and it slows you down overall.
9 Reply
Will GastonPro Member
Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
7y
@Jennifer White there are 1,000,000,000 things I wish I knew then but if I had to boil it down it would be these two:
1) Understanding how banks underwrite loans.
This is essential to scalability if you're looking to do it correctly from the start. The BRRR method would've been incredibly helpful to know about before my first deal.
2) Understanding how to correctly manage a property.
This aspect is very underrated IMO. Even if you don't do it yourself. Knowing how to manage a property effectively makes your life so much easier as you can properly judge how well or poorly your PM is doing it.
6 Reply
Michael Ablan
Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
7y
@Jennifer White - Be prepared for Cap ex expenses to hit at the worst possible times. These are the expensive repairs like HVAC, roof, major plumbing, ect.
6 Reply
Darren MesibovPro Member
Member since 2017 · 38 posts · 7 votes
7y
@Will Gaston good feedback. Would you mind elaborating a bit more on the underwriting process, and what you wish you had known about it?
0 Reply
Will GastonPro Member
Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
7y
@Darren Mesibov unless you have endless amounts of cash or want to partner with somebody then you're going to have to get loans. The lenders have the ultimate say in whether or not you get to buy more property or not. They are the real decision makers in my business. Find out what they require and/or want from you as the borrower.
I use small community banks and their portfolio lenders/underwriters care about several things:
-Location
-LTV
-Debt service coverage (Rent to payment ratio)
-My liquidity
Now that I know their requirements it is MUCH easier to buy property. I just reverse engineer what they want and go find that.
8 Reply
Frank Geiger
Rental Property Investor · NC · Member since 2018 · 776 posts · 776 votes
7y
Everything will go wrong at once. At least one thing breaks right after you buy it
Cast iron plumbing will take you for an expensive fix
4 Reply
Justin Robert
Investor · Temple, TX · Member since 2015 · 111 posts · 83 votes
7y
I will second the advice of @Matthew John. Always take a look during and after a large rain if possible.
2 Reply
Matt M.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
7y
@Jennifer White
I can tell you from experience, lots and lots of educating yourselves is key (it was for me), and cash of course. REI became a passion of mine in 2002. Didn't buy my first rental until 2015. For nearly 13 years I read anything and everything I came across, and as a contractor I had the rehab knowledge and costs. My two biggest clients are investors, and I have watched them grow for the last 10 years, and learned so much both on the rental and flip aspects. My advice to you is this: educate yourself (not just the BP calculators), have cash on hand, find a good realtor (which I have but have found all my deals myself, along with my last 3 primary residences), and establish a good relationship with contractors. Also, don't jump in just to jump in, make sure the deal makes sense! I've been a very lucky guy, with the support of my wife, finding good deals, and rehabbing myself, we are now on track to achieve my goals I've wanted for so long. Good luck!
7 Reply
Matt M.
Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
7y
@Jennifer White
One more thing... always expect and plan for the unexpected!
3 Reply
John FortesPro Member
Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
7y
This is a great question. What I wish I knew was more about the BRRR method. Instead I bought a cash flowing turnkey from day 1. To be honest, I don't think I was ready for that BRRR at that time and the cash flow method helped me understand and learn efficiently than if I was going into something learning on the fly.
This has allowed me to transition that BRRR method into our current 62 unit that we are rehabbing.
End of the day, figure out what you want to do, point your arrows and fire away. Only way to go about it is by taking that initial first step. Though I think this is a great question and usually come across these questions because many are in that paralysis stage. Just get going once you have landed on the direction you are going. Excited for you and your husband! God bless!
1 Reply
Terry N.
Member since 2019 · 33 posts · 18 votes
7y
@Karina Mejia,
The best ways that I know of to find them below retail are local sources like auctions and newspapers. You can also check out realtor.com. They have great search features within. I'd recommend sticking to an area you're familiar with - this way you'll know if it really is a good deal or just a bad deal in a bad area. If you go to auctions, you'll have to have actual cash (cashier's checks most likely, not hard cash).
I was watching one of the webinars on BP 2 days ago and he went to Realtor.com, plugged number estimates into the BP Rental Calculator, then displayed the results. Seemed to be a good enough deal to where you'd want to do more research into the property to refine the numbers and consider purchasing. I hope this helps answer your concern.
3 Reply
Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
7y
I didn't think it was going to be this tough and long! 🤔
The mindset foundation has to be strong so that when obstacles show up in your journey towards financial freedom, you know it's just one of those things and you keep on moving.
No1 reason many people fail or quit is that they never challenged their conventional thinking or how they viewed the world first before jumping into REI. If anything, this game is more psychology and relationships than calculators and properties.
Wish I knew all that before starting 🤗
8 Reply
Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
7y
Here are some things (I bought in 2014):
- No matter what is going on, you are scared that the market is going to tank tomorrow (just as true today as back in 2014). The pundits always have a great reason why the next recession is coming soon.
- Inspectors are terrifying - they literally list dozens to hundreds of items and you have no idea what "moderate" means in the context of risk to your property. You need a friend who's in the business (and not just your agent) to give you the real low-down on whether that risk the inspector brings up about the roof/HVAC/siding/gutters/grading/foundation is legit or not.
- As a general rule, vacant properties are WAY better than ones with inherited tenants - often the guy selling is selling because of long-term poor management and troublesome tenants. You also are prepared upfront for the possibility of not receiving rent for a time, forcing you to be more conservative.
- No matter how much energy you put into it, all your assumptions about rent, expenses, and cash flow are just guesses and probably not great ones in the end on your first property.
- If you forget the classic "location, location, location" and go just for cash flow, you risk losing out on enormous upside.
- If you speculate and just go for upside, your property can and will bleed you and force you to continually commit capital to it.
- 90% of single-family rentals are owned by people just like you - with 10 or fewer properties. You do NOT need to go all in and CAN do this as a side business or a hobby, if you will. Don't be scared of the guy who says you have to run this like a world calss businessman from day one.
- That aside, you should still run your business like a business.
- Your job is what is giving you great financing terms (low interest rate, 30-year amortization, relatively low down payment). It is NOT a burden when getting started in real estate.
Podcast Guest on Show #223
12 Reply
Zach Midwood
Rental Property Investor · New Bedford, MA · Member since 2018 · 56 posts · 32 votes
7y
@Jennifer White
I closed on my first 3-family (first property in general) a couple months ago. I wish I knew what the soft floors in one of the bathrooms indicated. I noticed during the inspection that below the linoleum the subfloor was soft. I didn’t think much of it, but on night #1 after closing when I ripped up that linoleum I discovered black mold that ran from the shower to the toilet. I should’ve realized that these soft floors indicated water damage, and with water damage comes mold. I fixed the issue correctly but this was an added cost that I did not expect. Next time I’ll know. To sum it up, pay attention to soft spots in floors...especially when the flooring in the bathroom is not waterproof.
5 Reply
Jack Tinker
Winnipeg MB, CANADA · Member since 2019 · 16 posts · 4 votes
7y
Hi Everyone,

I've been through the whole deal analysis process and purchased my first duplex a few weeks ago.

A question that comes to mind, I keep hearing experienced investors say that they make around 10 offers out of the 40-50 deals they analyze. What do you do if more than one of these offers gets accepted, what do you do if 5 of them get accepted? It's my understanding that when an offer gets accepted it's hard to back out of. So it makes me a little nervous putting in multiple offers.

I appreciate the feedback

2 Reply

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