Hello, my name is Larmon Cummings Jr. from Chicago, IL age 29, and I wanted to share my first real estate deal with the BP community. I felt it would be some good information for those like myself who are just starting out, and I thought it would provide some useful information that could prevent someone from making some of the same mistakes I did. To start things off, I have always been intrigued with the real estate industry, and I was taught early in life that buying and selling real estate was a business that would always be around, and I should start to acquire properties to help in preparing for my future. Well, after years of reading, doing plumbing contracting work for investors, educating myself about the real estate industry, listening to the BP podcast and learning about the many investing strategies that existed, I felt it was finally time for me to get started and do my first fix and flip.
I ended up finding a 1100 sq. ft. 3bd 1ba single level ranch style home out in the south suburbs of Homewood, IL listed for $45k. I had recently enrolled in real estate school to get my brokers license, so it was great timing to sort of get some hands on experience with some of the topics I was learning about in school. The company that was selling the property sold a lot of distressed homes located throughout the south and west sides of Chicago that they usually picked up at the auction. I contacted the company to get more information on the property and they gave me access to check it out. The place was in fairly good condition on the outside. It would only need a few cosmetic upgrades and it would be fine-not much money there. It was when I went inside that I knew there was going to be more work involved than I anticipated. The roof had many leaks and the house had been abandoned for awhile, so all of the ceilings were falling down, there was mold, and the list goes on. They were asking $45k for the property, the comps in the area (or what I believed to be the comps :-( ) were somewhere between $130-150k. In reality they were closer to $80-95k. I had been listening to the podcasts for the last few months, was in class learning, so I felt pretty confident in putting those comps together. I grew up doing a lot of construction, so I was estimating about $35-45k in renovation work. The project would consist of a complete gut of the interior down to the studs and starting over from scratch. I thought I had this all together, wasn't as hard as people said it would be.....
I have two best friends, and we all are working in our own career fields-me: own a small landscaping business, friend #1: accountant, friend #2: manager at railroad. It wasn't that we were that unhappy doing what we were doing, but we just wanted more and we all have been talking about putting a real estate company together so we could build wealth for not only ourselves, but also our families. We decided to go into this deal together to finally put what we've been learning into action. I called the company that was selling the property and explained the amount of work that needed to be done, and offered $20k. She told me they could accept the offer if we paid all cash, which we didn't have, so we agreed on $30k. We would put down $5k and they would carry the $25k note for 60 months. We would make an interest only payment of $250 the first month, then $750 for the remainder of the term: $250 interest $500 principal. The way I saw things, I would get a hard $$ loan for the reno work and have this project done in 30-45 days. I met the contractor in my real estate class, he seemed like a cool guy who knew what he was doing, so I had him give me a quote to do the work. He came in at $31,500 and said he could get it done in 30-45 days, so I told him he had the job. At this point I was feeling great. We closed on the property back in Jan. 2014, I had my contractor lined up, had a few leads on the hard $$ lenders-this was easier than I thought.....So here is where it goes wrong :-(
Soooo, we didn't expect the polar vortex to hit our area like it did, so it made it difficult to start the project. I mean, who wants to get on a roof to tear it off with 2ft + feet of snow on it?? Anyone?? Right, so no action there. I was still fairly calm at this point though because I was still trying to figure out the hard $$ lender situation, so the weather was buying me some time. Man, it sounded so much easier when I heard people talk about it on the podcasts!! LOL. The reality of the situation was that no hard $$ lender wanted to take a 2nd lien position on a property because it was just too risky for them. Guess I should've did a little bit more homework on that part of this whole equation. So now we do not have funding to complete our renovation, we're still dealing with the polar vortex, and oh yeah, we forgot about the part of carrying costs. Duh!! Now how did we forget that?? There was the $750/mo payment for the property, property taxes were $3k/ yr, and maintenance of the property. That calmness that I mentioned earlier was now slowly fading away, and my partners we totally freaked out. Friend #1 takes care of an elderly parent, has a lot of bills she deals with, among other things. Friend #2 recently closed on his own personal home, was planning a wedding, and recently had a baby-yes, a lot going on I know. We were all wondering what to do now, I mean, things didn't actually go the way we planned them. What a surprise right?? :-/ Me being in small business the majority of my life allowed me to deal with this situation with a bit more control then the two of them because they never had to deal with a situation like this. They were used to the comfortable 9-5 work environment and this really had them flustered. Friend #2 admitted that this was a bit much for him, and he asked if we'd cash him out $1k. We all contributed $2,500, so he figured he cut his losses and get out while he could. My other friend decided to ride the storm out with me, and was confident that I could do something to address this situation.
I remember listening to one podcast about wholesaling before, and I started going back through all the podcasts, the BP site, books, internet, and started trying to learn as much as I could about wholesaling. I figured I bought the property at a low enough price where I could wholesale it and get out of this situation. We were at the point where we just wanted to get rid of the property and be done with this "learning experience." I set up a Craigslist ad initially for $45k. I figured hey, I could make a few bucks off this thing. The first couple of weeks I got a lot of what I considered to be 'low ball' offers, and I continued to hold the property. What I was learning though through all the inquiries was that my ARV was very high for the area, and the deal wasn't as sweet as I thought. While in class one day, I remembered the teacher saying how if a property doesn't sell fast then lower the price. Thats what I did the next day, and more inquiries came back. My friend and I decided to join the local REIA for the Chicago area the next month, and I ended making some good contacts there. I ended up meeting some wholesalers that started working with me to get rid of the property. To sum up my story ( I know I know, I can be long winded lol), one of the wholesalers ended up finding a buyer at $32k, $6k above what we were willing to take. We had gotten to a point where it was starting to become overwhelming carrying the property along with our everyday life expenses, so we agreed we were willing to accept $26k if it came down to it. Well....a day before the wholesaler told me he found the buyer, I had a buyer call back from my Craigslist ad, and I had shown him the property earlier in the week, but he didn't seem like he was committed to closing this deal very soon. He liked the area and wanted to purchase the home for himself to live in. The guy ended up calling back saying that he was ready to make the purchase, but I had informed him that I had a serious buyer with cash who was ready to close in a couple of weeks. The guy ended up offering me $35k for the property, and he told me that he had a check for $9k to give me right then to let me know he was serious.
We ended up going with the guy and structured the deal like this: he would give me $9k down, and he would take over my contract with the seller right where we left off. I also talked him into taking care of our portion of the property taxes when they came due. We were into the property for a total investment of around $7k and we ended up with a profit around $3k. I wanted to share this experience because we made a lot of mistakes, but we stayed with this project and ended up actually making some money. Don't get me wrong, its always great when you make money on a deal, but I just felt it was important to actually do something and put everything we learned into action. We were prepared to break even, and even take a loss, but we knew the lessons that we learned would far outweigh any loss we could have experienced. That started this year off in the right direction for my partner and I, and after that deal was finalized we took a step back and reevaluated our business goals and decided to take some time to educate ourselves a little more so we can be better prepared for our next project. We are now planning a marketing campaign so that we can do some wholesale deals to build our cash reserves. Sometimes you need to just get out of the phase of analysis paralysis and put what you know into action. Thats not to say that you should not be diligent in doing your research and making sure you are prepared. You will never know everything, but constantly seeking knowledge and being willing to learn from others who have experienced more than you have will be very beneficial in your real estate career. Thanks for reading (if you made it this far lol ), and I wish you the best in your real estate investment journey.
@Larmon Cummings Jr Awesome! Great lesson there for all of us to remember to be conservative with ARV. Looking forward to hearing about 2nd deal.
@Larmon Cummings Jr thanks for the post. I had a similar deal with a flip that I was going to rehab, (it needed everything) I ended up selling it for a profit to another investor before investing any money into it, and I was able to use the profit to buy into another flip property later the next year. Thanks for sharing, your knowledge and experience went up a lot.
@Larmon Cummings Jr
Great story. I also like that you stayed open and remembered that there are other exit strategies.
Keep it up.
I love to hear stories about "mistakes." They're nothing more than learning experiences... I'm glad you got out (in the black nonetheless), and can't wait to hear the next episode!
Thanks for sharing @Larmon Cummings Jr.
Thanks for sharing. I like that you decided to partner for the first deal. It's something I want to do too but I need more contacts first!
Mistakes are the best way to learn unfortunately. Thanks for sharing yours so we can learn from them.
@Larmon Cummings Jr What an awesome story! I believe the best way to learn is through mistakes. You will remember the lessons from this deal over anything a course can teach you. I would also say its important to know the area where you invest. Looking forward to reading about your next deal.
Awesome story. Thanks . I am reading and trying to start but haven't yet. Lesson learned.
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